What is Financial Literacy?

Financial literacy describes one’s ability to understand and effectively use financial skills. Skills like personal finance management, budgeting and investing. The key components of financial literacy are, income, budgeting, bank accounts, investment, loans, risk and expense management. Most adults I interact with in my capacity as a Financial Consultant understand these concepts to some degree, some have a better grasp than others but generally, most of them are discerning enough. Singaporeans in general do well on the financial literacy scale, scoring higher than the adult OECD average score.

Why is Financial Literacy is Important ?

In many ways, financial literacy is a prerequisite to financial responsibility. If one is not able to comprehend nor posses the skills involved required to manage their own personal wealth, it is unlikely that said individual would be equipped to handle responsibilities like credit, loans and investments well.
With that being said, it can be safely argued that financial literacy is a core life skill required in order to meaningfully participate in the modern world. While this may seem straightforward enough to many of us, it can be easy to overlook the importance of imparting these values to children. Some studies have shown that children who have had lessons in personal finance do better than their peers when they reach adulthood. Children during their developmental years pick-up and learn things extremely quickly. It is important to utilise these formative years and turn them into key opportunities for moulding positive financial behaviour. This is another crucial way of securing their financial future. This begs the question, what can I do as a parent to teach my kids earlier on?

Pre-school & Kindergarten

Explain the basic concept of money by showing them how it is used and what you can do with it. Key areas you may wish to teach at this stage are: Earnings, savings, spending and giving. Here are some activities you can explore with your children:

1. Basic introduction to money
2. Earning Allowances
3. Saving Ang Baos and Piggy banks
4. Games that involve transactions

Primary School

At this age, the child would be able to understand the correlation between time and money. Children would also be able to recognise that adults go to work and in return for their time, earn money. Here is where you can start to explore concepts like the value of money, and how to prioritise spending. This is also a great time for them to explore personal finance management for the first time, whereby they can learn to manage their pocket money for the whole week. You may also want to incentivise maintaining household responsibilities by giving them a chance to earn allowances.

1. The value of Money
2. Recognise impulse buying
3. The value of giving
4. Managing own weekly pocket money
5. How to earn enough money
6. Saving Money

Secondary School and tertiary education

At this age, the child has matured into a teen and is experienced enough with their own interactions with the world around them to understand the fundamentals. Teaching them to plan for their future and introduce investments to them.

1. Teach them how to budget
2. Guide them to find a job
3. Balancing needs and wants
4. Introduce them to investing
5. Get them involved in real-life purchase decisions
6. Inspire them with success stories
7. Introduce the concept of inflation and inflation

A simulated world

A good way of looking at teaching financial literacy to your children is to simulate situations in the real world. Parents of young children can task their kids with simple household work, activities like packing their own clothes and toys can be rewarded with small monetary allowances. Having to work to earn an income is a reality for many working adults and a situation they will need to prepare for.
Thereafter you may want to present the child with the option to save their income inside their own piggy bank. In this scenario, you can offer to take up the role of the banker, incentivising saving by contributing some money into their piggy bank if they do decide to save that money. This introduces the concept of interests on savings in a clear and visual way.

During trips to the mall or whenever the child wishes to buy something. You as the parent can always relate the cost of that item to however much is in their bank account. This way, the child will be able to relate the cost of whatever they are interested in buying directly to how much they have earned and saved up. If however, they have not saved up enough to purchase something they truly want then it may be up to you as their banker to provide them with a line of credit.

In summary, as parents, we generally want to provide the best opportunities for our kids. This is to ensure their financial future if nothing else. Imparting financial literacy in the form of knowledge and skills is just another way of doing so. We should seize the opportunities to cultivate positive perceptions and represent the value of money accurately. In some ways, you are introducing them to the rules of the game that govern our society, much like a tutorial in a game, how well you are able to teach the concepts and rules can directly impact on the child’s ability to thrive in our society. While financial literacy has largely been a responsibility of the parents, recent initiatives by the government are also increasingly focusing on the importance of financial literacy. MoneySENSE the national financial education programme has also rolled out a mandatory financial literacy 4programme for polytechnic and ITE students in 2019. However, laying the foundations and imparting the values are still going to have to happen at home.


Alex Ang

Alex Ang has over a decade of success in financial advisory. Today, he supports an extensive network of long-term clients who appreciate his impeccable service and advice, while leading a team of successful top-tier advisors in IPPFA.
The ChFC® accredited adviser’s comprehensive experience and knowledge enable him to serve a wide demographic of clients – from mass-market, to mass-affluent and high-net-worth individuals. One of the Top 10 advisors in IPPFA since 2014, Alex has won numerous awards; he is a 11-time qualifier of the IPPFA Chairman’s Round Table (CRT) and is one of IPPFA-APEX Advisory Group Top Advisers.
Alex’s goal is to nurture the next generation of leaders in the financial planning industry. Always willing to share his knowledge and expertise with his team as well as new advisors, he is also known for his outstanding leadership capabilities.
The passionate mentor is adept in identifying talents and guiding them through learning programmes he tailors to their unique personalities. His ability to see the hidden strengths and talents of his mentees, has been key in helping them achieve their fullest potential. Under his tutelage, many of his mentees have achieved successes of their own within short time frames.

Contact Alex Ang at:

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IPP Financial Advisers Pte Ltd

78 Shenton Way #30-01 Singapore 079120Tel: +65 6511 8888 enquiry@ippfa.com