By Essie Bester
It is no secret that South Africans in general are big spenders. Very few of us put away enough money for our old age. And our children acquire this habit from us. Which is why Annamaria Lusardi, an international expert ant the academic director of the Financial Literacy Excellence Centre, encourages us to examine our relationship with money.
Our culture of conspicuous spending
Conspicuous spending is when we spend money on luxury goods for status. This culture is driven by daily messages from brands and institutions to spend more. Things we don’t really need become necessities because we are repeatedly told that immediate satisfaction is normal.
Social media make a further contribution by enabling us to see the conduct of others daily and think that we also have to spend. This trend causes us to spend our money on satisfying immediate needs instead of thinking about long-term needs, such as buying a house or saving for retirement.
This leads to less saving and domestic welfare, while eventually leading to a nation wallowing in debt and feeling unhappy because they have no real future aspirations.
Our savings culture is declining further as a result of our increasing access to credit. Technology allows us to spend without giving it much thought. Internet banking services are immediate and the comfort of card payments prevents us from really fretting too much about our purchases or really thinking about the long-term consequences. The result is that our youth grow up with access to credit and the conditioning that satisfaction has greater value than saving.
Teach your child financially
Financial illiteracy is a serious problem under especially high school learners and young adults between the ages of 18-25 years, says Lusardi. It is a cause of concern and dangerous.
Nowadays young people have to take many more financial decisions than we had to do in the past. According to Lusardi, they are at a loss on how to save money and how to prepare for retirement. Pension systems are changing and require more personal responsibility from young people. In addition, they live in a new economic environment with more complicated financial markets.
However, Lusardi says we can give our children the right skills for them to survive in this society by starting to instruct them as early as possibly. Her advice is that we have to talk to our children about money, however small they are. “But it is amazing how many parents find it difficult to do so,” she says. Consequently, children start spending before their parents have helped them to understand how money works.
Help your child from an early age to utilise every situation that arises. When, for example, he receives money from his grandparents, it is an ideal opportunity to talk to him about the question of whether he wants to save it or spend it. Parents can also talk about decisions they themselves take. Tell your child how you are saving for his education. It is important to make the topic relevant, so that your child will realise why he has to be careful with money. Do this as often as possible, as repetition enforces the lessons.
Pocket money is important
Pocket money can assist with this as it leads to greater financial confidence when they are adults. It teaches children to handle money and understand opportunity costs. If they spend it on an ice-cream, they cannot use it for something else. The lesson is that you don’t have inexhaustible sources in life. Instead you have to reflect on how you can use that which you have carefully.
According to her, parents can encourage their children to save their pocket money by promising them a bit more if they should save it. It is important that children understand the meaning of saving. See to it that they know how compound interest works. “Young people have an unbelievable opportunity to build welfare, because they possess a wonderful asset, namely time. And time works in their favour as a result of compound interest.”
It is clear that for our own, but especially for our children’s welfare, we have to change our thought process and show that we can be frugal. Only in this way can the idea that spending your money is the answer to everything be turned around.