Learning how to manage money is an invaluable skill to have. Unfortunately, many of us only come to this realisation once we’re forced to deal with adulthood. As a parent it’s your responsibility to equip your children with life skills; so, why not teach them how to manage their finances from an early age as this could save them years of financial difficulty.
We take a look at the following steps that parents should consider in order to ensure that their children become financially responsible once they reach adulthood:
- The value of money
Until your child earns their first salary, money is usually an abstract concept.In order to make money a reality in their lives, you will need to teach your child the value of money. Eunice Sibiya, head of consumer education at FNB, advised that parents chat to their children about what they’d like to have whether it is clothing, a toy or even airtime.
“Use that in relation to something you use as a family every day, such as milk or bread. If they want a R50 item, discuss how many loaves of bread that could be. You can even put something like their school fees in context by making them work out how many loaves of bread it would take to pay,” explained Sibiya.
- Don’t base spending on your emotions
Teach your children to detach their emotions from money. Sibiya said: “Many of the big financial pitfalls are when people spend money based on emotions rather than logic.” Teach your child to really understand the need to purchase something, rather than doing so without thinking it through. This will go a long way helping them in the future.
- Make budgeting a family affair
Alfred Ramosedi, African Bank group executive of sales and marketing, said that learning to budget and seeing it through is a discipline that everyone should learn. ”A budget should make provision for the here and now, but also include room for future goals like retirement or education. How well you manage your money and payments now will determine your future financial wellbeing. The younger people are when they learn this principle, the more likely they are to attain their financial goals.”
Ramosedi urges parents to involve the entire family when drawing up your monthly budgets. Make it a fun exercise. Let the kids draw up their expenses i.e. stationery, school trips, school lunches, tuck shop money, holiday outings etc. as well as their income, this can include pocket money, monetary gifts, cash received from doing chores etc. “Teach them how to add up their income and then speak to them about what they would like to spend it on.”
- Draw up a list of financial goals
Make a list of realistic short and long term goals i.e. holiday planning, upgrading assets, retirement etc. Determine when you want to reach your goals and how much time is required to save for those goals. Ramosedi recommended including your family in your goal setting plan so that you can work together to reach those goals. “Remember goals will only be reached if you make them part of your budget and saving plans. Every member needs to be committed and realise that they too will benefit from achieving the goals.”
- Teach your children about compound interest
Thami Cele, head of savings and investment at Absa Retail Banking suggested demonstrating the power of compound interest so that children can see the benefits of wealth growing from little to a lot over time. This will help them to comprehend that the more time they allow their money to grow the better. “For example, a great way to motivate teenagers to save as a parent is to match the amount of money that they have successfully put away. Sit with them every month and read through their statements reflecting the actual growth on their investment. This will ensure that they continue to do their best in putting a percentage of their pocket money away.”
- They are in control of their finances
When your child reaches adulthood they will need to understand that they are the only ones in control of their finances. Sibiya said: “The most important aspect of this is that every financial decision, even seemingly small and insignificant, has an impact on your money.”
Sibiya stated: “All parents want the best for their children, so giving them the skills to control their finances is a lesson that will help them throughout their lives.”