*This content is brought to you by Brenthurst Wealth
By Mags Heystek, CFP® *
Teaching your kids about financial literacy is a gift that keeps on giving. It prepares them for the future, equipping them with the knowledge and skills to make wise financial decisions. The benefit of starting from an early age is that you can inspire good money habits early in their life that they would be more likely to continue as they mature.
With that said, here are the four easy money lessons that I propose all parents teach their kids:
1. Introduce them to investment principles early on
The journey to financial literacy begins with understanding the value of money and the importance of saving. Opening a digital investment account is a practical step towards this goal.
It’s not just about saving; it’s about investing in their future. By starting small, you can teach them about the stock market, shares, and the concept of compounding growth.
You could also introduce them to the idea of getting paid for doing household chores. This approach not only teaches them the value of hard work but also gives them a sense of ownership over their financial future. Show them where their money is going and explain the basics of investing, such as what stocks and bonds are, to demystify the process.
2. Open a savings or investment account
The best time to start investing for your child is now. Early investment means you can take on more risk, allowing the portfolio to grow over time. When setting up an account, involve your child in the process. This can be a valuable learning experience, showing them how investments are made and managed.
While only parents and legal guardians can officially open accounts for minors, extended family or friends can contribute, making it a collaborative effort. This teaches your child about the importance of community and support in financial success.
A great option to consider is a tax-free savings account. It offers great tax benefits and can be a significant component of a child’s future savings and investments.
3. Involve them in financial discussions
As your kids grow, especially those in their teenage years, introduce them to your financial advisor or involve them in discussions about investments. This exposure is invaluable because it gives a real-world context to the concepts they’re learning about. It also prepares them for their future, making the world of finance less intimidating.
Explain to them the details of your investments, the role of an executor, and the importance of knowing who your financial advisor is. This transparency not only builds trust but also prepares them to manage their own finances effectively in the future.
4. Adapt the lessons to their life stages
From using a clear jar for savings to teaching them about budgeting with a simple app, each stage of your child’s life offers unique opportunities for financial education:
– Pre-school: Use a clear jar to save, so they can see their money grow. This visual aid is a powerful tool in teaching the basics of saving.
– Primary school: Introduce concepts like opportunity cost and the importance of earning money through chores. This age is perfect for teaching about spending, saving, and giving.
– Teenagers: Teach them about contentment, the dangers of credit cards, and the importance of saving for college. Encourage them to manage a simple bank account and budget their income, preparing them for adult financial responsibilities.
Financial literacy is a critical life skill, and it’s never too early or too late to start teaching your kids about money. By taking these steps, you’re not just preparing them for a financially secure future; you’re empowering them to make informed decisions and to understand the value of money. Remember, the goal is to make these lessons a natural part of their growth, ensuring they’re equipped to navigate the complexities of the financial world with confidence and wisdom.
SIDEBAR:
Legal and Tax considerations
Securing your child’s financial future is a priority for you, just as it is for me. Opening an investment account for them is a smart move, but it’s crucial that you understand the legal and tax implications to ensure everything is set up correctly. Here’s what you need to know from my experience:
How to open your child’s investment account
To open an investment account, you’ll need to have your own account verified according to the Financial Intelligence Centre Act. Once that’s sorted, you can easily add your child’s account through your profile on the investment platform. This process is designed to be straightforward, making it simple for you to kickstart your child’s investment journey.
Who can open and contribute to the account?
While only you or another legal guardian can officially open an investment account for your child, don’t forget that extended family members or friends can also contribute. They can do this using a debit order authority form, allowing a wider circle of loved ones to support your child’s financial growth.
What happens when your child turns 18?
When your child reaches 18, the investment account legally becomes theirs. The platform will guide you through the transition process, ensuring a smooth transfer of control and responsibility to your now-adult child.
Restrictions before age 18
Remember, until your child turns 18, they can’t legally make withdrawals or investment decisions about their account. You’ll act as the authorised user, but I encourage you to involve your child in the investment process as much as possible. This involvement is key to building their understanding and interest in managing their finances.
Tax considerations
The tax implications of investing on behalf of your child are important to grasp:
- Any income, dividends, and interest from investments you make for your child will be taxed as part of your finances.
- If you sell shares from their investment account and make a capital gain, this will need to be included in your tax calculations.
- Crucially, your child’s investment is not considered part of your estate for duty purposes, offering a tax-efficient way to pass on wealth.
* Mags Heystek, CFP® is head of the Brenthurst Wealth Sandton [email protected]
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