If your child receives an allowance, they may spend it quickly and mindlessly. As with many things in life, it’s up to you to teach them to manage their money responsibly.
We find out how to teach your child to set up their first budget, and we then consider some basic financial concepts you should introduce them to.
Tip: Set a good example for your children and make sure you save enough money – find out more.
Assist your child with their first budget
Sbusiso Kumalo, chief marketing officer at African Bank, says that one of the best lessons you can teach your child is how to manage money properly.
“Learning how to budget – and sticking to it – is a discipline that everyone should learn. The younger people are when they understand this principle, the more likely they are to attain their financial goals in the future,” he says.
The first step, Kumalo says, in teaching your child to budget is to sit around a table and get them to think about their monthly expenses.
“Make it a fun exercise. This could include things like tuckshop money, outings with friends, or saving for a favourite video game.”
Once a list of expenses has been drawn up, says Kumalo, they can start working on an income list. For example, this may include pocket money or cash received from doing chores. Show them how to add up their income and speak to them about how they plan to spend it.
“This is a great opportunity to teach them about the benefits of saving and the concept of financial goal setting. Once they have saved up and purchased their goal item, the sense of achievement will spur them on to do more of the same in future,” he says.
He suggests setting a limit for how much your child can spend each month. There is little use in drawing up a budget if your child isn’t going to stick to it. They will then learn first-hand how to manage short-term wants, such as visits to the arcade or splurging on snacks, in order to achieve longer-term goals.
“This is an issue many adults still grapple with, so instilling some financial discipline at a young age will pay off later,” says Kumalo.
Finally, he recommends introducing them to digital banking. Children spend a lot of time online, so it’s a good idea to teach them how to safely manage their money on their devices. Ideally, open a bank account for them and link their account to yours so that you can keep track of their spending.
“Nowadays children are so tech-savvy that it’s an easy introduction. It will allow them to learn about financial concepts, such as interest, and see it in action,” says Kumalo.
Teach them about important financial concepts
Lana Visser, financial planner at Fiscal Private Client Services, says that it’s incredibly important to teach your children the difference between a “want” and a “need”.
“For the most part, children don’t have to pay for anything that’s essential to their survival. However, they may have spending money so they don’t have to ask you for cash when they want to go out. If this gives them a sense of independence or security, then it’s good for their financial education,” says Visser.
However, you need to make sure they understand that, since they aren’t responsible for any bills or necessities, their money will – most likely – be spent on “wants”. There’s nothing wrong with this, but it’s important that they understand the concept, and that they will have to consider it more in the future.
Visser suggests that you highlight the difference between instant, short-term satisfactions, such as buying takeaways, and long-term gratifications, such as buying a PC game.
“They should understand that it’s acceptable to go out and use their money to have fun, but they should be disciplined in how much and how often they spend on consumables,” says Visser. It’s good for them to have something to show for their financial decisions later down the line.”
You can assist your child further by saving for their future – open a tax-free savings account