Life lessons for your child
Teaching children about saving and investing is a balancing act.
In South Africa’s poor saving culture, many adults find themselves without a penny saved at the end of the month. Unfortunately, as a result, the children of these poor-saving-habit adults often struggle with their finances once they become adults themselves because of poor savings behaviours learned while growing up, further perpetuating this poor savings habit cycle.
Unbeknown to the parents themselves it’s not what they say, but what they do that really counts when attempting to teach their children the right way to deal with money and savings. Parents ‘model’ how their children will eventually handle money, so it is of pivotal importance that you teach your children the right ways of dealing with their finances in order for them to have a healthy financial future, and not to fall into common pitfalls.
Estelle Scholtz-Mare, Head of Financial Wellness at Momentum, says: “Children often mimic their parents' habits – good and bad – so a parent should do what they preach, not say one thing and do another. Keep in mind that the advice that you give your children has to be age- and life-stage specific. If you start lecturing about saving for retirement when they are in their teens their eyes may glaze over.” Keep in mind that a child’s money habits are usually formed by around age seven. However, it is never too late to teach them.
Demonstrations work well with younger children. Often practical, visual steps make more of a longer-term impact than typical conversations about money.
“Every young child can understand the concept of saving. Pocket money is a great way to teach them about budgeting – give them a fixed amount each week and get them to save a portion of it. At the end of each month allow your child to spend the saved portion. They will soon cotton on to the merits of saving,” says Scholtz-Mare.
Beth Kobliner, author of the bestseller Get a Financial Life, says that a practical way to teach your child about saving is to have them set a goal for something they want – such as a toy – and get them to save their pocket money for it. An easy way to do this, she explains, is to create a savings, spending and sharing jar. When they receive their pocket money have them divide it between these three jars. The great thing about this is that they can actively see how much their money is ‘growing’ monthly in each jar.
“It’s really about them being cognisant about saving for their goal,” explains Kobliner. She further says that you should explain to your child how much is needed in order for them to reach their goal, and count out with them how much they have actually saved towards it. “All these behaviours are fun for kids, and it gives them a sense of importance of waiting and being patient and saving,” says Kobliner.
With your older children, make an appointment for your child to chat to a financial adviser, “having an expert tell them how to build wealth will have more gravity,” says Scholtz-Mare.
Once your child understand the basics, and sees the benefits that savings will have not only in the short-term but long term too, they’ll be sure to make the right decisions when they are older.
Don’t forget to explain credit cards to your older children – they need to know the difference between debit cards and credit cards. They need to know the consequences of not paying your debts, and what it could mean for your financial health in the future. If you have already taught them to handle them money smartly, further teaching about credit cards won’t prove to be a problem.
It’s important to explain that owning a credit card doesn’t mean that you have free money to spend. Although it delays paying upfront for an item or event, you’ll still need to make monthly contributions towards your card which eats away at your savings – and with interest you end up paying more than what you originally owe. By explaining the basics, your children will be sure to catch on.
“To help young adults make sure they understand the danger of debt you should help them start a savings plan as soon as they start work. Don’t bail your child out of their bad financial decisions, otherwise they wil always use you as a fall back,” explains Scholtz-Mare. If, however, you do help your child, discuss with them where they went wrong and how they can do better. Often, they will need to learn from experience so teach them what you can and model the ‘correct’ money habits and they’ll already be miles ahead from their peers when they enter the workforce.
If you think teaching your children about finances from an early age is a waste of time, think again. Even business mogul, and most successful investor of the 21st century, Warren Buffett is in favour of teaching children about money matters: “My parents helped me develop the right financial habits from an early age. And I had wonderful teachers who taught me the fundamentals from an early age. Not calculus, but the basics. If you get the fundamentals right, the rest will follow.”
article by : momentum.com