We know that our parents only want the best for us, but that doesn't necessarily mean their financial counsel advice is always right.
When we are young, our parents are the ones we almost always consult first when we have questions or worries regarding money. Although, in reality, the majority of what they teach us is typically based on outdated economic principles.
As we grow old, we gain more financial awareness and we realize that age does not equate to wisdom; Now, we get to understand that their financial advice is not always accurate.
Some of us may have been fortunate enough to obtain sound guidance, but unfortunately, not everyone is privileged enough to receive important financial pointers from their parents. Here are some outdated financial pieces of advice you might have heard from your parents and why you should disregard it.
"Save all of your cash in the bank."
Your parents may have advised you to save most of your income in a savings account. That made a lot of sense back in the 90’s, but not so much today.
In 1985, Singapore reached its highest interest rate in history. If you put your money in one year, you may expect an average return of 6.3% every year. Currently, the average effective interest rate in Singapore is 1.23% according to ValueChampions (2022) . Compared to the return our parents are earning on their savings accounts before, it’s clear that there is a minimal benefit in keeping money in the bank today.
The best course of action is to keep your money set aside in a high-interest savings account for the next three- six months. While most banks offer an almost zero interest rate, there are also other options like CIMB FastSaver, DBS Multiplier, and UOB that provide more than 1% interest rate.
After taking care of your immediate financial needs, it’s time to put the rest of your hard-earned money to good use. Put your money to work so you can keep up with inflation. Leaving your savings at a bank typically earns you a base interest rate of 0.05% each year. That is not even sufficient to fight inflation!
The only time you’ll earn up to 3 to 4 percent on your savings account is when you do certain actions, such as investing with the bank, taking out a loan, or purchasing insurance. With that being said, it’s important to research more about investments. You can check this article to help you maximize your savings.
"You are not old enough to begin investing."
Ideally, investing should be done earlier, but what’s important is to start investing as soon as you realize its importance.
Starting your investment career at a young age, let’s say 20, may have brought you a completely different path as opposed to starting it in your 40’s.
When you’re younger, time is on your side, so you can make the most of it. You still have many years ahead of you to ride out the ups and downs of the market while allowing your investments to accumulate interest and dividends year after year. You will also be able to take on greater risk and invest in asset classes that have the potential to yield more significant returns. Some examples of these asset classes include stocks, unit trusts, ETFs, and even cryptocurrency.
Nowadays, investment opportunities are far more accessible than they were in previous decades. With the availability of affordable brokerages and robo advisors, we can easily automate our investment within our risk level.
When life gets in the way, and you have other obligations to take care of, like buying a home, raising children, and caring for elderly parents, you’ll feel grateful to yourself for starting your investment path at a young age.
"Investing is a surefire way to lose money so don’t invest in many channels."
This may be true, but only if you invest in meme stocks and stocks which you’re not really familiar with. There is no such thing as a risk-free investment, but you can reduce the odds of losing money by researching well.
It’s a common misconception among the elderly that saving money is the best way to ensure financial security in the future, but this no longer applies in today’s world, where the recession has just passed through.
Due to the high levels of competition and uncertainty in our current market, no single investment or business can be trusted. There are a variety of niche-specific investment instruments and a vast number of sources from which to acquire these investments. It’s important to remember that not every investment strategy or business will always thrive. At some point, they will eventually drop. So when you put all your eggs in one basket, you will definitely hit a loss every time the market drops. This is why financial consultants and experts emphasize the need of having a diversified portfolio.
What you can do now is start learning about investments as soon as possible, so that you may start investing on your own and figure things out as you go. If you want to boost your chances of success in the investment world, reading this article about common mistakes in investment is a great place to start.
"Credit cards are just a trap for more debts."
We get why parents would say this; having a credit card at your fingertips is a double-edged sword: it encourages spending because of the temptation to buy things you don’t need, and it may lead to an overwhelming amount of debt because of the ease with which you can keep rolling over your balance.
But that only occurs if you are delinquent on your payments. Credit cards are just a tool, and it’s mainly our responsibility to use them appropriately. Credit cards are not innately bad; they are only instruments. Depending on how you use them, they can either bring in profits or incur losses.
Though expertise is not badly needed for you to profit from them, you should nonetheless, have the self-control to pay for your monthly bill in full. Once your credit card builds up, you should put them on hold. You’ll need to cut your spending cards in half first, and start again with a new budget.
By making regular, little purchases on a credit card and paying it off in full each month, you can boost your credit score, which can be used later to get a mortgage or other financial tools, and you can also rack up cash back, points, and miles toward that beautiful, free business class ticket.
“Insurance should not be a priority.”
Financial advisors (FAs) are often linked with a negative impression due to the common concept about them– being pushy and duping people with “let’s have coffee” into endorsing some of the insurance products.
Despite how much you dislike them, FAs could turn out to be very significant in your life.
In the event of an emergency, they should be among the first persons you contact, and the ones to assist you with any claims you have.
Since you can never predict the future, even the most affordable health insurance plan must be a top priority. Without health insurance, you’ll be stuck with a pile of unmanageable debt should something happen to you unexpectedly (crossed fingers).
If you don’t have health insurance, you could spend hundreds of thousands of dollars on unexpected medical care overnight.
Not sure where to start? Learn more about the various types of insurance policies that can provide financial security for you and your loved ones by reading this article.
Conclusion
The strategies our parents used to succeed financially may not be the same ones that will work for us now. Our parents want nothing but the best for us and hope that they will see us become successful one day.
There’s nothing wrong with listening to our parent’s advice. However, remember to take it with a grain of salt whenever possible and always do your own research before taking their (unsolicited and solicited) advice.
Ask yourself this: Have your parents ever given you outdated financial advice that ended up costing you? We’d love to know more about it.