Investing in your kids' future with their Chinese New Year hong baos 🧧

‍Start inculcating the right financial values from young

Before the age of 15, I had a money diary that my mom would keep in her safe, of the money I received during Chinese New Year (CNY). At the end of every long day of house visits, I would run to her room, get my money diary, and stack bills and coins in piles, ready to count and put them in my ledger.

At some point, this ledger was finally replaced with a bank account. But it had not grown passively over almost two decades of accumulation — in fact, it didn't even grow at bank interest rates. 

I remember setting up my first bank account and immediately being pushed to buy some "hot" funds of that period. Not knowing any better, I paid a sales charge and bought some products from the banker at our local branch, to put my capital in the markets.

Years went by. I’ve changed the funds a few times, but have not really used this bank account since — and it has not grown much at all, unsurprisingly.

Reflecting on this experience, I identified two points of failure:

• To my loving parents (who may chance upon this article), the act of saving was taught, but not the simple principles of inflation, interest, and compounding wealth.
• To me, I had the opportunity to reverse the fate of this money once I learnt how to invest, but turned a blind eye in my frustration and did not give it the care and attention it needed to be put on the right course.

What if my hong bao money was invested over the years?

Looking back and doing some quick maths, my hong bao or ang bao money would have grown to more than 4.3x — or +335% return — since my first CNY in 1990, if my parents had helped me invest on my behalf in something like the MSCI All Country World Index (MSCI ACWI). The global equity index comprises large and mid-cap stocks across developed markets and emerging markets.

Let's attach some numbers to this example to make it more tangible:

• Assume that I received S$500 in red packets every Lunar New Year from generous relatives and friends, from 1990 to 2023. That brings my total hong bao money collected to S$16,500 over the years.
• My parents diligently invested this money in a fund that tracks the MSCI ACWI since 1990. To keep it simple, given that every CNY falls on different dates, let's assume that the $500 injection was made on 1 Jan of each year.
• If my parents never touched the money in the fund, I would have about S$71,819 in my investment goal today.
• That works out to a +335% simple return on my investment amount of S$16,500 over the years.

‍Read more: Four investing myths to debunk for budding investors

‍Putting our children’s hong bao money to work

Fast forward to today — I now have three kids of my own.

My oldest child is six. The past CNY, she counted her money next to our bed in the morning and wrote down the total on a post-it. She handed it over with the cash and gave it to me for safekeeping.

We invest so much time, money, tears, joy, and love in our children. We should really help guide them through some of life's more uncomfortable realities, like money. 

It got me seriously thinking about how I can empower her to be better with money so she can pursue her life ambitions in her control.

When she is of age, I will teach her some foundational principles about passive money, such as:

• The power of compounding interest
• What to expect in terms of volatility to achieve higher expected returns
• The benefits of diversification and keeping costs low

But for now, as she has entrusted me with her money, I have set up an investment goal for her hong baos so that her money can get to work, and these generous gifts from relatives and friends are utilised to empower a better future.

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‍As we usher in the new year, make a commitment to invest in your future-you. Start early and let your wealth compound over time. 

Explore the Endowus Fin.Lit Academy to pick up personal finance and investing tips, and stay updated on market strategies. Learn about the Endowus Flagship Portfolios — the most popular and simplest solution for those who are embarking on their investment journeys. Click here to get started with Endowus.

This article was originally published in February 2021. We’ve updated it in January 2023.

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