Hannukah Gelt and Financial Education

When I was a child, the Hanukkah money I received was mainly chocolate coins and other small surprises that I won at the spinning top game. In my family it was not customary to give money for Hanukkah. But when I grew up and got married, my father-in-law and mother-in-law started giving my children Hanukkah money as soon as they were old enough to understand what money is, at first small sums, 20 shekels, 50 shekels, and with age the sums also went up.

My kids of course were very happy about this new custom, while I was thinking what the kids could do with the money. In the early years the children bought themselves sweets and small toys. But very quickly they realized that the Hanukkah fee was not enough to buy more expensive games. But how will they have money for an expensive TV game they coveted?

First we talked about how to set a goal. Need to know the cost of the game, then plan how to save enough money to buy it. Since they started with small sums, which started with modest Hanukkah fees, they decided to give up using them until they had accumulated enough money to buy the game. This is how they learned the concept of saving: saving means giving up consumption today to consume in the future. This means that if we want to save we must give up small temptations along the way.

But how do you achieve an expensive goal? After all, the Hanukkah fee will not be enough. The kids decided to make a joint fund of all their savings to achieve the goal. First they asked all the uncles and aunts who bring them gifts on their birthdays to bring them money instead of a gift. Sometimes they received monetary gifts from grandparents on Passover and Rosh Hashanah as well, so they also saved them and did not spend them. In addition they saved their monthly out-of-pocket expenses. Thirdly they refrained from spending the money they had saved on anything but leaving them in the coffers towards the goal. So my three kids saved the Hanukkah money and holiday and birthday presents until they collected, for quite a long time, the three of them together, a sufficient amount that they purchased a TV game.

From that beautiful purchase in a joint effort several years passed, the children grew up, and I realized that I had to educate the children not only to save for the purpose of buying toys, but also to save and invest towards a more distant future.

Ask why children should save themselves for the distant future? The answer lies in a famous sentence by Albert Einstein: “The compound interest” is the eighth wonder of the world. Whoever understands this, wins. Whoever does not understand this, pays. “If we invest our money over time so that it accrues interest of a few percent each year, and leave the amount accrued including the interest in the account so that it accrues more interest, the starting amount will increase exponentially. The longer the money accrues interest. The amount that will be accumulated will be larger, so a regular deposit at a young age for the distant future can bear very large fruits in the future, especially if it starts at an early age, precisely because of the time that passes.

Albert Einstein

The problem is that in the last decade we have been in a very low interest rate environment so it is difficult to “grow” money in this way.

The solution I chose was to invest the money in a program that has a risk (the possibility that the money will lose value), but over time, at least historically, it has positive returns (return on investment is equivalent to interest – a percentage where the money we deposited grows after a certain period).

I researched the various savings and investment options of money. There are many options, each of which has advantages and disadvantages, there are many issues that need to be understood such as management fees, risk exposure, liquidity, taxation and more. Therefore, I will not mention the investment channel I have chosen. But I will note that the alternatives I examined were investment provident funds, savings policies of insurance companies, investment in index-tracking funds both in Israel and abroad, etc. I learned that the information available around these financial instruments is not enough, and one must also understand the personal situation to make a choice. It is wise not to raise funds in the future, so it is also advisable to consult professionals, assuming that you may start with out-of-pocket expenses, but later on the funds can accumulate to a significant amount.

Now that I have decided where to target the funds, I explained to my children the logic of long-term investing, and asked each one, each time he received a sum of money, to decide how much money out of the amount he received he decides to give up today in favor of investing in a future investment fund. If it is holiday gifts, birthday gifts, income from youth work, at first I offered to transfer 10%, 20% and at some point I offered them to transfer 50 percent of the set of gifts they will receive for future investment. The goal was also to invest money over a long period of time, and to create a healthy habit in it when receiving any income, small or large, one must first decide on depositing some of the money for future use, and strive to achieve a return for it to grow over time.

The children did not always agree with me on the size of the provision, and sometimes I gave them up completely on the grounds that they had an immediate need for money (for example – financing driving lessons), but the discussion of how much money to leave aside increased each time a large sum came to them. The discourse on how to divide money between the various possible uses (current consumption, short-term savings and long-term investment) made children invest thought in the different uses of money in the present and future.

The idea of ​​saving from a really young age over time is an idea that has an echo in the public policy system as well. In Israel, a few years ago, savings were introduced for every child, the goal of which is to encourage the public to save for many years to come. The savings for each child will be liquid when the child reaches the age of 18, and there is also a benefit that encourages savers to keep the savings until the age of 21. This policy addresses the idea that young people will need capital to start life to finance education, or purchase a car, or other purposes. Another aspect is the savings for the aging period. In recent years, it has become clear that the public’s pension savings will not be enough for it due to a number of factors, including the extension of life expectancy, wrong decisions during life about investing the saved money and more. A study by Sarit Menachem Carmi and her father Spivak found that men would receive only about 35% of their salary as a pension, and women would receive 29% of their salary as a pension. In the US there is an even more serious situation as there is no obligation to make a pension provision and many employees do not understand the importance of provisions throughout life and therefore do not save for their retirement years.

In the US, billionaire Bill Ackman recently proposed in an article in the New York Times that the US government grant $ 6750 dollars to each newborn baby, which will be deposited in a stock index-linked fund, with a management fee of 0 (similar to savings for every Israeli child). Ackman argues that if the annual return is similar to the stock market’s historical returns, averaging about 8% a year over several decades, such financial management would give savers $ 1 million by age 65 and $ 2 million by age 74. Warren Buffett told the film about his life, avoiding donations for years The reason is that he saw in the long run – that if he invested the capital in a return over the years, the compound interest effect over many years will increase his capital and he will also have a larger amount to contribute what actually happened.

It is important to understand that such investments require a long horizon of time. Within two years the stock market can fall and the return can be negative. But the knowledge gained so far from economic studies is that if there is an investment horizon of several decades, then the amounts that will accumulate can be very large.

From my home experience with my three children I discovered that there is another reason to start teaching children to set aside a large portion of the money early. It is the younger ones who manage to dedicate the greater part of any gift they receive in favor of the investment for the future because they do not have the expenses that the teenagers have. This is similar to the ability of young people who have not yet given birth to children to save a larger portion of their salary even if it is modest, relative to young people who are already under the burden of raising expensive children.

I read that the Hanukkah fee custom began with the goal of educating the children to give charity to the poor. So for those who want to add values ​​of concern for others to financial education, you can introduce the children to the idea of ​​devoting part of their Hanukkah money to donations.

* The things written here should not be seen as an investment recommendation. In order to make investment decisions one should consult with licensees in the field.