It is undeniable that we live in terrible economical times, where salaries do not match up to expenses, and debt in homes are as common as milk in the fridge. It is important for adults to have basic financial skills to navigate through life, and it shocks me to see how many adults have very little to no financial understanding, merely because no one had taught them important financial lessons when they were younger.
As parents are the main influence on their children’s financial behaviours, it is their responsibility to teach them how to live financially fit lives. A report by researchers at the University of Cambridge revealed that children’s money habits are formed by age 7, and children as young as 3 can already grasp the financial concept of saving and spending.
Below are money lessons recommended by Forbes that parent’s can teach their children at various ages, and the sooner parent’s start taking advantage of everyday teachable money moment, the more opportunity they have in raising a generation of mindful consumers, investors and savers.
Your child may have to wait for something you want.
The idea of having to wait to buy something you want is a concept which is difficult to learn regardless your age. However, the ability to delay your urge to consume can till an extent predict how successful you will be as an adult. Children need to learn at this age that if they really want something, they should be patient enough and save to buy it.
As they don’t understand actual money value, one can create 3 jars, these can be different sizes giving hierarchy, labelled ‘savings’ (your child should set a goal to buy a large item such as a toy), ‘spending’ (smaller items such as ice-cream) and ‘sharing’ (to donate to an organising such as SPCA or similar). Every time you child receives money, they should split it equally in these jars, and when it’s full they can use the money for what they intended.
Your child needs to make choices about how to spend money.
At this age, it is crucial for your child to understand that money is finite, and once spent it is gone, and they have to accumulate it from start again. Parents should also engage their children in more adult financial decision making. You can for example, ask your child to get R10 of oranges and R10 of apples. They can pick them, and get them weighed, and you can explain to them why for the same money you get more of the 1 fruit and less of the other. Interaction is the best way to learn something, and this way they begin to compare certain money value to certain items, and they will also question future price increases, when they get less fruit than what they used to getting.
The sooner they save, the faster their money can grow from compound interest.
At this age you can shift from short-term savings to long-term savings. Introduce the concept of compound interest, and how they can increase their savings by keeping it there longer. When they understand this, allow them to make decisions on what they will give up to save money for something bigger, this might mean that they will give up on after school snacks to contribute their money to an iPod.
When comparing universities, be sure to consider how much each school would cost and what other expenses are involved.
When you child has an academic direction, include them in the decision making on comparing university fees and other related expenses, such as rent and food, and give them the opportunity to weight the pro’s on con’s against each other. Be honest with your children as to how much you are able to afford to their university contribution, and what the degree can offer them upon graduating. As university is extremely expensive, parent’s should be careful not to discourage their children when having these financial discussions. Keep in mind there are many ways to finance an education, and parent’s should do their homework with regards to this.
Your child should use a credit card only if you can pay the balance off in full each month.
It is impossible for a young graduate to pay off a study loan as well as a credit card with their new salaries, and it is too easy for anyone to build up a credit card debt. According to business tech in the second quarter of 2015, there are 23.37 million credit active consumer in South Africa, and 10.5 million of them have impaired records.
Your child at this age should understand what a credit record and credit history is, and if the parent cosigns the credit card, their bad record would influence the parent’s as well. Your child should also understand how interest works, so that they can decide if what they want to purchase is worth the additional interest, or if they would rather wait and save up. Do not get your children in the habit of spending money they do not have.