Raising financially smart children
By Leslie Greyling *
As we celebrate National youth month let’s encourage and guide our children & grandchildren to become financially responsible adults.
Cultivating healthy money habits in children is one of the most valuable life lessons you can impart, it sets them up for independence, responsibility and long-term success.
Young people have the biggest advantage compared to other savers/investors = TIME!
Most schools don’t formally teach young children “money” or financial principles – it’s largely left up to the parent/s.
The earlier they learn and apply key financial skills the greater their reward will be over time.
Here are a few broad principles to guide children of all ages toward financial literacy:
Understand “wants” vs needs:
Teach them to differentiate between wants (luxury items) and needs (essential items). Allow them to make mistakes, for example if they spend their whole allowance on an expensive item, and have no money left to go to the movies with friends.
Money is earned, not given:
An allowance can be earned by doing chores around the house. Older children can earn extra money by babysitting for family and friends, tutoring younger kids, or part time work.
Learn to save:
Encourage them to save a portion of their allowance, or birthday money, for example 1/3 towards savings and 2/3 to spend. For younger children savings can be kept in a piggy bank, and for teenagers in a bank account.
Value of money:
Explain why you make certain decisions while shopping, for example buying in bulk can be cheaper. Show them the price difference of the same product but different brand or shop.
Money management:
Show them how to keep record of earning and spending of their pocket money/allowance. This will teach them to budget and keep track of income and expenses in later years.
Model good behavior:
Children learn from what you do more than what you say. If you are an excessive spender your child will most probably have the same tendency. Set a healthy example and be a positive role model when it comes to finances.
Be transparent:
Talk openly about money, your financial decisions and mistakes you’ve made.
Explain how to use credit responsibly and how to avoid pitfalls like credit card debt.
You might think most of the above is common knowledge and quite obvious, but if we look at how many middle-class South Africans are drowning in debt, it becomes clear that basic financial literacy is lacking.
The key is to start saving /investing as early as possible, the power of compound interest is one of the most important factors in wealth creation.
* Leslie Greyling is a financial advisor at Brenthurst Wealth Fourways leslie@brenthurstwealth.co.za