By Essie Bester
This year 22 April has been reserved for the financial literacy of the next generation, something that appears to be an urgent matter. According to a 2019 survey by the National Credit Education Foundation only 55% of adults give themselves an A or B when they have to assess their knowledge about personal finance.
According to a survey by Budget Insurance only about 30% of South Africans report that they have emergency savings, while only 19% can survive for three months should they lose their income. Saving money is a habit that could take time to develop and there are lots of adults who still have to master it.
Here are 10 steps you can take to better empower your children – and perhaps yourself.
- Discuss desires vs needs
Explain that needs include the basic things such as food, shelter and clothes, while desires are all the extras they would like to have. Use your own budget as an example to illustrate how desires have to take a backseat in terms of spending.
- Let them earn their own money
Children’s pocket money is the next step. “Children as young as five or six years can begin to understand the value of money. By the time a child goes to grade one he can start on pocket money,” says Kirsty Scully, certified financial planner with Core Wealth.
Scully says there are different ways of paying pocket money.
This is an ideal system for children younger than eight. Let them help at home with simple domestic tasks to help the family such as sorting laundry in different colour bundles or to help drying dishes. Personal tasks such as keeping their bedrooms tidy must be done without payment.
For children of about 10 years old you can introduce a system in terms of which they are paid to do extra work, such as keeping the swimming pool or gutters clean.
This is the best for older teenagers. They still have responsibilities but you pay them a higher basic amount of pocket money, which can then be spent on essential items such as clothes and toiletries or transport and entertainment. This gives them an opportunity to manage a budget. If you offer them allowances for tasks, they also learn the value of hard work.
- Set saving goals
To a child saving may seem pointless if you don’t explain why. Motivate them by helping to determine a savings goal. If they know what they want to save for it helps them to break up their goal in manageable parts.
- Provide a way of saving
For younger children it could be a piggy bank. For older children you can open their own cheque or savings accounts at a bank. In this way they can see how their savings grow and how they are progressing towards attaining their goal.
- See that your child knows where his money is going
If your children get allowances, it could be an instructive experience to have them write down their daily purchases and total them at the end of the week. Encourage them to think about how they spend their money and how much quicker they could attain their savings goal by changing their spending patterns.
- Offer savings incentives
One of the reasons why people invest in their employer’s retirement plan is the comparative contribution made by the company. You can use the same principle to inspire your children.
- Make allowance for mistakes
Let your children learn from their mistakes. It is only natural to want to intervene in order to steer your child away from a potentially expensive mistake, but it could be better to use the mistake as a learning opportunity.
- Act as their credit provider
One of the basic principles of saving is to not live above your means. If your child wants to buy something and is too impatient to save for it, it could be a valuable lesson if you act as your child’s credit provider. Lend him the money on the condition of repayment with interest.
The lesson you want to teach him, is that saving may mean that satisfaction is postponed but that the item he wants to buy will eventually cost less if he waits.
- Talk about money
If you want your children to learn about saving, it is a subject that should be discussed continually. You could plan a regular weekly meeting to talk about money or make money talks part of your daily rounds.
- Set a good example
If you want your children to become savers, you need to save as well.
Getting your emergency fund ready or simply increasing your pension fund contributions can help to encourage saving as a family activity. You could also decide to save together for, say, a family holiday.