Financial gifts for

your children: They’ll

thank you 20 years later

Giving your kids a financial gift (we’re not merely talking about money here) may not elicit peals of laughter and instant admiration in the eyes of your children, but it is one of the best ways to teach your children about the concept of money and investments.

You may think that they are too young to appreciate them but the fact is, the younger you start them on the right financial track, the better prepared they will be in handling money in their later years.

The key is to not just hand out a gift – be it cash or an investment without getting your children interested or excited, It you are giving them a sum of cash, you may want to make it known that they can do whatever they wish with the money but that they are expected to use it responsibly.

Take the time to share with your children how you spend your money such as the percentages in which you allocate your funds towards savings, expenses, investments and charity. Inspire them with your savings goals (Daddy is saving to bring all of us to South Africa next year!) Let them learn that money is an enabler and must be used wisely. On another note, it you are giving financial gifts to a few of your children, it would be best that they all get equal portions.

Another important point is to personalise the experience and help them to maintain the investment for as long as they can. It was once said, by Einstein as some believed, “The most powerful force in the universe is compound interest”. Keep it long enough and your children will have a nice sum stashed away for college or a downpayment for a car when they are ready.

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“The most powerful force in the universe is compound interest”

Financial gift ideas to start the ball rolling

• Ringgit to ringgit

A savings account for your child is a great place to start. However, your children may not see the value of saving, as compared to the instant satisfaction of splurging their duit raya or angpow on the latest toys and games. One way to encourage them to save is to give them an incentive: you may want to consider telling them that you will top up a ringgit for every ringgit saved. It will help them to cultivate the habit of delayed gratification in order to realise something better at a later date.

• Start investing early

Unit trusts can be a simple way to start educating your children on investments. Take time to explain to them the different type of funds available and why you chose a particular fund, If possible, choose funds with companies that your child can relate to. Tell your child that as owners of a fund they own a small part of each company, then scroll down the list of companies for familiar names. Continue to encourage interest by showing them how to track the ups and downs of the fund in the newspaper.

• Power of compound interest

A Fixed Deposit is the easiest and probably the most secured financial gift to give. Twenty years later, the power of compound interest can turn a Fixed Deposit into a tidy sum. Interest earned must be redeposited into the account for this to work, however, do note that the current interest rates may offer a conservative return.

• Giving them the best of both worlds

An investment-linked plan is a terrific financial gift for a child. It’s a 2-in-1 plan that offers protection and investment at the same time. Plans such as HSBC LifeSe|ect Regular* invests part of your contribution (premium) in a fixed income fund or equity fund (or both), while the rest of the contribution serves to protect your children from unforeseen circumstances. Over the years, the investment portion could potentially earn higher returns than Fixed Deposits and you’ll be assured of protection for your children at the same time.

Pair it with a simple gift

You can pair your financial gift with a smaller gift – perhaps not their dream gift – but something that will still bring on the smiles as a child may not immediately appreciate an investment receipt as a birthday present. The reverse is also possible. Pair a big gift with a smaller financial gift instead. But top it up every year, such as depositing RM500 annually into their Savings account, HSBC LifeSelect Regular* or Unit Trust fund until your children reach 18 years of age.

Then monitor and grow it

Play a consistent role in your children’s investment. If they have a Savings account, take them to the bank to make deposits (saving 10% of their monthly allowance is a good habit) just like the grown-ups do. If they have investments, let them look at the statements and help them understand it to nurture ownership for their funds.

It may not be instant but in time to come, your children will learn to be financially savvy. While your children may not thank you for it now but as they mature in age, they will begin to appreciate your wisdom in teaching them one of life’s most valuable lessons. Of course, they’ll thank you for the little heap of fortune then.

*This plan is managed by HSBC Amanah Takaful (Malaysia) Sdn. Bhd. (Company No. 731 BSGM) whose principal place of business is at 3rd Floor, Wisma Hamzah Kwong Hing, No. 1, Leboh Ampang, 50100 Kuala Lumpur (“the Takaful Operator”). HSBC Bank Malaysia Berhad (127776-V) (“HSBC”) and HSBC Amanah Malaysia Berhad (807705X ) (“HSBC Amanah”) are the intermediaries in arranging this plan, where HSBC or HSBC Amanah will be paid a commission by the Takaful Operator. The precise terms, conditions, exclusions and definitions of this plan are specified in the certificate of cover for this plan.

How do you start giving financial gifts?

Fixed Deposits and Savings accounts have evolved and accounts now have many features that allow you to manage your finances smarter. Just talk to your Relationship Manager or Personal Banker who may be able to assist you to find one that is just right for your children.

HSBC LifeSelect Regular* is a 2-in-1 investment-linked plan distributed by HSBC Bank. A monthly contribution of RM150 is all you need to take up this plan for your child. It invests your contribution in your choice of HSBC Amanah LifeSelect Fixed Income Fund or HSBC Amanah LifeSelect Equity Fund (or both). Your child will also receive protection benefits of Death Cover and Total and Permanent Disability (TPD). You will also have the flexibility to top-up to maximize your investment value and withdraw your investment without any charges. What’s more, you also have a choice of four riders, which are as follows: (i) Critical Illness rider; (ii) Accidental Death and Disability (ADD) rider; (iii), Payor rider or (iv) Critical Illness Waiver of Contribution rider. For details, please call us at 1 300 88 0181.

For larger financial gifts you may want to contact your Relationship Manager or Personal Banker who may be able to assist you in the matter.

April 2009