“Money doesn’t grow on trees.” How often did you hear this or similar sentiments as a child when you wanted a treat or a shiny new toy? As a parent, how many times have you responded with this very phrase to your own child?
Although such phrases are well known, they are not effective tools to teach financial understanding to children in the current age of technology and advanced information-sharing. Fortunately, there are many exciting developments that present parents with opportunities to coach their children on basic money matters, according to Priya Naicker, the advice manager at Old Mutual.
“There are many free resources and financial education tools available, particularly in digital and mobile app formats, so there should be no excuse for not enjoying meaningful and fun money-awareness activities with your children to help them become money-savvy adults,” she says.
Lack of financial literacy and understanding can severely impact how South Africans manage their money. The 2017 Old Mutual Savings & Investment Monitor found that, out of a group of 10 metropolitan working South Africans, only six say they are satisfied with their current financial situation.
“Whether our children grow up to be business leaders, biochemists, architects, chefs or entrepreneurs, they’ll need to make a host of financial decisions on a regular basis. Choosing pay structures, understanding their individual taxes, making informed decisions on debt based on interest rates and fees, and balancing household budgets are just some of the financial challenges that will continue to face the next generation.
“Ultimately, they will need to be equipped to balance their immediate needs and wants with planning financially for their goals and dreams. The importance of responsible financial behaviour and awareness from a young age cannot be overemphasised,” Naicker says.
“With my own child, I began discussing investment concepts such as interest, asset allocation, shares and fees very early in her savings journey, initially using simple drawings to explain. The underlying principle was to have her understand and take accountability for the decision of where her money was being saved or invested. Over time, she began asking more questions and became more conscious of the fees she paid and the growth earned. She has also become far more discerning about what she spends her savings on,” says Naicker.
Naicker suggests four ways to get the money conversation going.
1. Income vs expenses
Discuss the relationship between income and expenses with your children. Not only is it important for your expenses to be lower than your income, but you also need to budget and plan what you will spend your money on. By apportioning your spending in line with what matters to you most, as well as saving toward goals, you will limit the temptation to spend impulsively.
2. Make earning interest an exciting thing to do
Help your children to understand the advantages of saving for the things they want in life, rather than taking on debt to have them, by introducing them to the concept of earning interest. Explain how compound interest helps your savings to grow. Also explain the flip side of compound interest: how it can make borrowed money (debt) spiral out of control.
3. Help them to set money goals
The next time your child wants the latest PlayStation or mountain bike, use the opportunity to have a conversation about setting money goals and creating a plan to achieve them – and emphasise the importance of sticking to their plan. This will help them to see the benefits of good money habits.
4. Teach them about real money
The cashless world of credit cards and smartphone payment apps can make the act of paying very abstract and intangible. Next time you’re paying with your card or smartphone, talk to your child about basic banking concepts. Point out that paying with a credit card simply means you have to repay your bank later – probably with interest. Explain how technology has made it easy to pay for goods, but also easy to get into debt.
Remember that actions speak louder than words, and it’s your own money habits that will most likely influence your child’s relationship with money.