Now that “Chu Yi” (初一), or the first day of the lunar new year, is over, many parents have started tallying their children’s hongbao haul and making notes of which relatives have been stingier than usual with their monetary blessings.
Whether you let your kid keep all of their hongbao takings or choose to “safekeep” the money for them, now is a good time to also think about how the hongbao money can be put to work.
Depositing the money in a savings account is a no-brainer, but there are other ways you can help your child use their hongbao money wisely.
Hongbaos as teachable moments
After a day or two of visiting friends and relatives, your child would no doubt want to spend some of their hard-earned hongbao money. Take this as an opportunity to impart some money management skills.
For instance, ask them how they wish to spend their hongbao money. This could lead to a conversation about the difference between needs and wants. Point out what items on their wish list are needs and wants, and help them decide how they should allocate their hongbao money.
One way is to separate the portion of their hongbao money available for spending into two buckets. This can be done in a 70:30 split between needs and wants.
The most important wealth building lesson
Hongbaos can also be an opportunity to teach them about the concept of compound interest. Every Chinese New Year, you can show your kid how much their hongbao haul from previous years have snowballed.
This is a great example to illustrate how even a small sum saved or invested can translate to future wealth. Over time, as the interest gets reinvested and compounded, the value of their hongbao money grows without any effort on their part.
Consider a cash management account for your child
After setting aside the portion of hongbao money to be spent, savvy parents may not want to put the rest of the funds in a savings account, given that bank interest rates are at all-time lows.
While a savings account is a great way to teach children about money management and instil a savings mentality from a young age, the fact remains that the 0.05% p.a. base interest on most kids’ savings accounts doesn’t even keep up with inflation.
One alternative for your child’s hongbao money is Syfe Cash+, a cash management portfolio that offers projected returns of 1.5% p.a. There is no minimum investment amount, no lock-up period, and no withdrawal fees.
You can easily help your child transfer or withdraw funds at any time. So if your child wants an expensive new toy, the withdrawal process is as simple as logging in to Syfe’s platform and making a withdrawal request.
In fact, you can use Syfe Cash+ as a tool to teach your child about budgeting. Explain to them that their bank savings can be used for regular everyday spending and short-term savings goals. Meanwhile, money in the Cash+ portfolio can be earmarked for a long-term savings goal like buying a Nintendo 3D.
Invest for your child’s future
Parents can also consider investing their child’s hongbao money for higher potential returns. Yearly hongbao takings could snowball into a comfortable sum to offset their university expenses or cover an overseas school trip.
Thanks to the power of compounding, the earlier you start investing, the more time there is for your child’s hongbao money to compound and grow.
It doesn’t take thousands of dollars to start investing for your child’s future. At Syfe, there’s no minimum investment requirement. You can start with just a few hundred dollars and add more to the investment with each annual hongbao haul.
A good starting point to consider could be Syfe REIT+ portfolio. The hongbao funds will be invested in a diversified portfolio of 20 Singapore REITs. This includes Mapletree Commercial Trust, CapitaLand Integrated Commercial Trust, Ascendas REIT and more.
If you’re planning to invest for the mid-to-long term, this portfolio could be a good option that will provide stable dividends as well.
Planting the seeds of prosperity
Teaching your child the value of saving and investing from a young age is an investment in knowledge that truly pays the best interest. Knowing how to successfully manage their own money is a skill that will have profound impact even long after they’re grown up and giving hongbaos of their own.