How to Use Hong Bao to Teach Kids About Money

In a live TV interview, our Managing Director Rohith Murthy hands down practical tips for saving hong bao money and teaching kids the importance of saving.

Kids of all ages love Chinese New Year because they get to feast on delicious goodies and collect hong bao.  With a significant sum stuffed in red packets each year, there's no better time than Chinese New Year to teach money lessons to your kids.

In a live TV interview on Channel NewsAsia's FirstLook Asia TV show, I explain how parents can use hong bao to help kids understand the basics of saving and money management. Watch the full video here.

Why Chinese New Year is a Good Time to Talk to Kids About Money

Chinese New Year is when kids get to handle their own money for the first time. And since they don't need that much cash at such a young age, there's an opportunity to introduce the value of thrift and the habit of saving for the future.

My daughter for one is very excited about receiving hong bao because she knows that there’s money in the red packets and she can buy lots of things with it. But rather than rush to the mall, we sit down together and talk about the importance of saving money. We separate the different denominations, count the amount, write down the sum, and discuss what to do with it.

The Best Age to Discuss Money with Kids

Start talking to your kids about saving money before they enter primary school. This is when parents begin giving their children pocket money for meals from the school canteen, stationery, etc.

Children should learn the value of money and develop the habit of saving on a regular basis. Without financial education early in life, your kids will have difficulty living within their means and end up spending more than they can make or save.

Just as it's critical for kids to learn maths, it is just as important for them to learn how to save for a rainy day or invest to counter inflation.

4 Ways to Use Hong Bao to Teach Money Lessons to Kids

1. Start a children's savings account

You could save 80% of the hong bao money and set aside the remaining 20% for a specific task that helps them to learn more about managing their money.

Parents can include children in the activity of setting up a children’s savings account. Explain to them about how interest rates make their money grow each year. Continue to encourage them to save their allowance and let them deposit an amount every month, so they can watch it grow over time.

2. Save up for a big ticket item

If your child is looking forward to a costly item like a Lego set, hoverboard or PlayStation (nowadays there seem to be plenty of expensive toys around), make him/her work for it.  Set aside the lump sum and encourage your child to start contributing every month towards the purchase through their pocket money or doing chores around the house. Teach them to track how they are faring towards their goal.

3. Use a Practical Budgeting Exercise

For example, give your child a budget and a task such as throwing a  party for their friends.  With guidance on how to plan, shop and prepare for the event, this fun and hands-on activity can help children pick up practical organisational and financial skills, by comparing prices and spending within their budgets.

4. Donate to Charity

With the money that they have received, it’s also equally  important to teach children to appreciate what they have, and value of money by helping the less fortunate by donating to charity or supporting a worthwhile cause.

Where to Save Your Children's Hong Bao Money

Don't just stuff the cash in a Milo can, or you'll miss out on opportunities to grow the money through interest.

We've compared the different children's savings accounts in Singapore to so you can see which will help grow your kids' hong bao the fastest:

Based on this table, the OCBC Mighty Savers Programme gives the highest return at .80% p.a. if you manage to deposit S$50 in the account every month.

Now, let's say you have a 7-year-old child who receives S$600 in hong bao money every year and deposits it in a savings account with an interest rate of .80% p.a. He also deposits S$50 into this account per month until his 15th birthday.

By the time your child is 15, this is how much the savings account will contain:

In conclusion, it's never too early for kids to learn about financial planning and money management. By making a game out of budgeting and saving, kids will soon develop these good money habits and carry them into adulthood. Both schools and parents can do much to promote better financial literacy among children today.

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By Rohith Murthy

Rohith leads Singapore’s SingSaver.com.sg, a financial comparison site aimed at helping consumers in Singapore save money and time by finding the right financial products.