Life is so much easier if you know how to work with money and how to make your money work for you. It’s one of those vital life skills that we need to teach our kids, but it can be a tall order, especially if you battle with certain aspects of this yourself.
The reality is that children learn so much from what they see and hear. By watching mom and dad they pick up many habits (good and bad) that they will take into adulthood.
This doesn’t only apply to money! Having a healthy relationship with money means being comfortable working with money – having a good balance between earning, spending, and savings and that debt is non-existent or under control.
These lessons can be taught to your kids from an early age, but try to keep it fun. Little ones are very perceptive and from a young age will see you shopping, spending money, and swiping your card, and it could seem that funds are limitless. Make money tangible from as young as the age of 4 or 5, by showing them coins and explaining the difference between them in terms of value.
They can also count them and you can encourage savings by getting in a clear jar or “piggy bank” and giving them your small change to deposit into it so they can see the money grow.
Earning is learning
By the time your child is in primary school, you may be giving them pocket money, either a regular amount or in exchange for small tasks around the home (taking out the rubbish, making their bed, helping to wash the car, etc.). Giving them pocket money in turn for tasks performed introduces the concept of working and earning money. As they grow older, they can even earn money by taking on part-time jobs.
Money is a limited resource and we all have to make decisions around what we do with it. There are really only three things one can do with money – spend it, save it or give it away. Those decisions are planned using a budget, so show your child how to draw up a simple budget – how much will they spend (and on what) and how much will they save. A child may have a big goal in mind (such as wanting a specific game or toy) and this is where you can introduce the concept of saving up for goals.
Another valuable lesson taught through budgeting is the difference between needs and wants. As a parent you may be taking care of their needs (food, shelter, wifi, and so on) and they may use their money for entertainment or other purchases – explain the difference between needs and wants and perhaps even share your budget with them so they can see how you prioritise your spending.
Set clear boundaries as to what the pocket money is supposed to cover and what you will pay for, and stick to your guns. If your child has agreed on a budget and on how they will spend their pocket money, do not bend these rules at any point. If they decide to spend more than their budget or spend their entire pocket money on one day, then that’s done.
Don’t bail them out by giving them more money for something else they want or need. This is a terrible lesson that many parents teach their kids – that someone will always bail them out – and it can sow the seeds for reckless debt and other poor money habits in adulthood. It may be a harsh lesson, but one that is invaluable.
The savings bug
A savings culture is so important, not only from an individual perspective but also for a country as a whole. South Africa has a notoriously low rate of savings, and it can only change one family at a time. As your child approaches teenage years, open a savings account for them, if you haven’t already done so. You could deposit their pocket money into this account, and encourage them to deposit any other money they may receive as gifts, into this account. They will experience the exciting power of compound interest and the benefits of long-term savings.
With the evolution of electronic banking, many young people will rarely set foot in a physical bank but banking is not going anywhere. Discuss how banks operate and what options they provide for their clients. Also, explain interest – how it is earned if you have money in the bank and it is charged of you own the bank money.
The credit crunch
From around 16 onwards, your teenager may be doing a part-time job and earning some real money. Adulthood is around the corner, so it’s a good time to start talking about credit and explaining and how this works. Debt carries a huge responsibility and it’s easy to fall into the debt trap if one doesn’t understand how it all works. Many young people have been lured into taking out credit cards or store cards, as a result of powerful marketing campaigns, only to seriously regret these decisions later in life. So forewarned is forearmed. Credit cards, personal loans, overdrafts, interest charged and credit scores are all valuable components of debt that your child needs to understand.
There is also the issue of good vs bad debt and how to know the difference.
Good debt is debt incurred that will increase your net worth, such as investing in your education (student loan) or in a property (home loan). Encourage family discussions around various aspects of debt, and if you have made poor decisions in the past around spending or debt, discuss these openly, as your children can learn from your mistakes.
Walk the talk
Actions speak louder than words, so it’s no good talking about good money habits if you’re not following your own advice. Help your kids to develop healthy money habits as you lead by example.
You may want to set family goals and include your kids in aspects of the planning.
Let’s say you were planning a holiday – discuss and agree as a family how you will achieve this – what expenses you will cut back on and how much you will save every month toward this goal. Monitor progress towards the goal and keep everyone informed.
Just also be aware that parents with vastly different attitudes towards money can be both damaging to the family relationship and confusing for kids who are picking up cues from both parties. A unified, responsible approach to money will be far more beneficial to your kids in the long run.
Parenting is not an exact science and we learn as we go along. Of all the skills we give our children, being money smart is one of the most valuable.
Start today, you have nothing to lose!
This article was written by Sylvia Walker. [SPEAKER | AUTHOR | FINANCIAL PLANNER]
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