How money-savvy are your children?
All parents use the age-old adage “money doesn’t grow on trees” at some point, to which children usually respond with sighs and eye rolling. The truth is that few children learn the important money-savvy skills they need to thrive as adults.
Parents often invest thousands to provide children with the tools of success. They pay for extra tuition, school fees and sports coaching, yet never show them how to gain financial independence. Yet it is arguably one of the greatest life lessons we can pass on to children.
The fact is, no parent wants their children to make the same mistakes or endure the same hardships they did. This is why instilling the right attitude and values towards money must happen from a young age.
Floris Slabbert, Country Manager of Ecsponent Financial Services, shares his top tips he would want parents to pass on to children:
Saving is more than putting money in a bank account
Opening a savings account for your child in their early years is a great start, but your savings journey should not end there. Rather than regularly saving on your children’s behalf, it is far more beneficial to let them interact with – and have access to – their funds. This will teach them the implications of spending as opposed to saving in a practical and personal way, leading to better financial understanding.
This is also a great opportunity to get your children to think out of the box and embrace their inner entrepreneur or investor. Discovering the true value of money for themselves and seeing how it can be exponentially grown over a period of time.
Including your children in this process is probably one of the best ways to show the importance of patience and the planning involved with wealth creation.
Model good behaviour
Without a doubt parents are their children’s greatest role models. That is why children should see how their parents spend and save responsibly. They are much more likely to follow a good example of controlled spending and financial planning than a lecture.
If you are always in debt, or make rash purchases and financial decisions, your children are also likely to follow your example.
A good way to set a good example is to show your kids how you put money into a piggy bank once a week to save for a particular goal. It is even better if you can save together and in time, your children will see the benefit of delayed gratification through disciplined saving.
Giving your children chores and responsibilities to earn pocket money will show the concept of earning, as opposed to receiving a handout. This will help to instil a good work ethic and proper financial habits that they can carry through into adulthood.
Teach them the basics and vocabulary
Kids grow up with access to technology. Show them how to use it to their financial advantage by letting them access their bank balances online and transfer or withdraw money. Additionally, teach them the basics of financial vocabulary – the meaning of concepts like interest, capital, tax and inflation.
Learning financial terms is almost like learning a foreign language, so take the time to explain some of the terminology. There are many resources available online to help with this process. If you start from a young age and provide simple explanations, you will be surprised at how quickly they learn.
Give your children the freedom to take risks
At some stage, we have all taken a risk on an investment that may or may not have paid off. Chances are you, learnt from what you may have done right or wrong.
Giving your children the freedom to take risks when spending their own money is a good way to teach them about the importance of adjusting their risk appetite to match their own financial goals and circumstances.
For example, say your child is saving towards a new camera of R3 500 for your family holiday in two months’ time but they have only saved R2 000. Taking R500 of their savings to invest in an entrepreneurial scheme is a good risk. E.g. they can buy a popular refreshment and sell it at school at less than the tuck shop’s price, but still at a large mark-up. That’s good business and calculated risk taking. This will also awaken the entrepreneur in them.
Regardless of their age, children will soon learn what not to do when they see their precious savings depleted on risky spending.
Be prepared to take on an investment advisor role
While it is an invaluable learning experience for children to manage their own financial affairs, they still need help. You can and should step in to tell them about the risks or implications of their financial decisions.
Be open to talking about the pros and cons of various investment vehicles and the investments you have made on their behalf. The more they know about the savings or investments you have put in place for their future, the more likely they will be able to make educated decisions to manage their own savings, earnings and investments independently.
Ultimately, as with all savings, the earlier you start the better. By teaching your children to put away a portion of the money they earn – or are gifted – from a young age, you are instilling a culture of saving.
At the same time, don’t make talking about money and personal finance a taboo topic in your home. Serving as a financial advisor / teacher to your child increases their odds of maximising the wealth you have put in place for them and is an important way of setting them on the right track towards becoming responsible, money-savvy and financially independent adults.