Addressing the BOMAD phenomenon
Parents, here’s 3 tips to building generational wealth for your children
In many countries around the world, it has become extremely challenging for young people to afford homes. That is, of course, unless they have assistance from their parents.
So much so, that some people in Australia and the UK have called this phenomenon BOMAD. That stands for the ‘Bank of Mom and Dad’. BOMAD, see?
In Singapore, we’re witnessing one of the hottest housing markets in the last decade. Resale HDBs in prime locations are crossing 1 million? No longer eye-opening news.
So while ‘BOMAD’ is not a popular term here, we all can appreciate the luxury of familial support when it comes to home ownership in expensive markets like Singapore.
While there’s nothing much you can do if you don’t have a BOMAD of your own, we can do the next best thing – give you suggestions on how you can create a strong and reliable safety net for your children. This is so they can afford things like housing, education, and have options in life.
Here are three suggestions on how you can do so.
- Don’t overspend on your children!
Here’s common and simple advice to be rich.
Spend your money on assets that appreciate in value. But here’s the thing. Your children? They’re living, human beings – not assets! While giving your children a good life is important, this can backfire if you’re spending too much on them.
Yes, the temptation to overspend on our children is always present, and can sometimes blind us to equally important priorities in life. These include setting strict budgets for your household income and making sure that you have enough savings for your own needs.
After all, every dollar spent on your children, means one less dollar on building wealth for you and your loved ones. That means less investments, real estate, retirement funds, as well as funds for your children’s future!
- Increase your earning ability
- Running a business: Some of the world’s wealthiest families didn’t get rich through working the 9-5 grind. The point here is, owning a business gives you control, something you rarely get from being an employee. You call the shots, you set the pace, and most importantly, you reap the full rewards.
- Learning highly-valuable skills: Some of the world's top earners aren't business moguls; they're experts in fields that are in high demand. Sure, not everyone's cut out for entrepreneurship, and that's perfectly fine. The beauty of living in this age is that you can also climb up the financial ladder by being a high-skilled professional. We're talking about careers in technology, medicine, engineering, you name it. The more specialized your skills, the higher your market value. Simple as that.
- Start investing as early as possible.
Because of the nature of compounding interest, the earlier you start investing, even if you start with a smaller amount each month, the more you’ll earn in the long term.
For example, if both a 25-year-old and a 35-year-old invested $10,000, here’s what they’d have at 65:
25-year-old: $70,399
35-year-old: $43,219
See what we mean?
For that reason, one of the best things you can do financially is to start investing early.
Some investment vehicles you might want to look into are things like the stock market, bonds, endowment plans, unit trusts, as well as everyone’s trusty CPF Special Account.
Educate your children beyond the classroom
Finally, one mistake parents in Singapore often make is not transferring the life lessons they’ve learnt to their children. Too often, we hear how children easily squander the very life savings their parents have sacrificed so much to earn.
After all, multi-generational wealth requires multi-generational effort.
By the way, financial education can start when they’re very young!
For example, instilling in them the value of time by demonstrating how to break up their day into sessions – ensuring that there’s enough time for school work, enrichment, rest and play. You can also show them the value of patience and delayed gratification, like waiting for a sale when buying items which are less urgent.
Of course, for children that are more financially savvy, you might also want to teach them how to manage their own pocket money, build a budget, or even invest in a simplified, age-appropriate manner.
The importance of compound interest, for instance, is a lesson that's best learned early; you can use games or apps that simulate investment to make the point come alive for them.
Customise a plan that suits you best here.
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