Even if you have a natural saver on your hands, you still need to teach your child about budgeting and investing, as well as how to shop mindfully by comparing prices and understanding the value of what they are buying.
Whenever I meet people whose finances are in good order, they invariably tell me that it was due to the lessons their parents taught them. As young children they were warned against taking on debt and taught about the virtues of saving. They worked for their pocket money and their parents taught them about budgeting and saving towards a goal rather than just handing out cash on a whim.
So how can you, as a parent, go about creating a financially savvy kid?
I know from personal experience of having two very different children that everybody is born with a money personality. For some children, saving comes naturally – they don’t really have anything they want to spend their money on and they like the idea of seeing their money grow. For other children, money burns a hole in their pocket and they are not happy until every last cent is spent. But with the right encouragement, you can change their behaviour and attitude towards money.
My first born is a natural saver. He is quite happy to hoard all his pocket money, splashing out occasionally on books. My second born however, is a completely different child – money has no value at all unless it is turned into something tangible. This didn’t stop him from becoming absolutely distraught because his brother’s money box was so full while his was always empty. As a parent, especially one who writes about money, I was really worried about what would happen to him once he grew up and discovered credit cards!
However through teaching him about money and the value of goods as well as getting him to set goals, he has saved over R1 000 in his bank account. It may take more encouragement for some children than for others, but if you put a plan in place, your child can learn some very valuable financial lessons.
Open a bank account
Saving money in a piggy bank is a tangible way to teach children about money and the actual value of the coins and notes. There does, however, come a time when a bank account is more appropriate.
A money box never encouraged my son to save; being able to see the money burnt a hole in his pocket and he was just desperate to spend whatever was in it. When he was about 8 years old I opened a bank account for him and his behaviour shifted immediately. It was a matter of “out of sight, out of mind” and he started to want to grow the money. By adding in birthday money and saving his pocket money, he was able to save towards things he really wanted rather than wasting the money on sweets and cheap plastic toys.
A bank account also teaches children about banking. You can even turn it into a family project – help your child to research the various bank accounts and to understand the most cost-efficient way to bank.
Have a separate savings account
We took the bank account a step further by linking a savings account where we transfer any birthday money. In order to spend it he first has to transfer the money to his transactional account so this further encourages saving. For older children who may have longer-term goals, opening an investment account that is linked to the stock market can be an excellent way to teach them about long-term investing. If for example your teenager has a holiday job or a weekly part-time job, encourage them to put R200-R300 away each month into a unit trust. Even if your 16-year-old saves just R200 a month into a unit trust and it grows at 12% a year, it could be worth as much at R17 000 by the time they turn 21.
Teach the value of money
It is important to give children money they can spend themselves so they understand the relative value of money. Most families do this through pocket money which can be linked to chores in the home. By relating money to a chore, they learn that money is worth something and doesn’t just grow on trees. It is also a great way to get the dog walked and fed!
Teach them to compare prices
Take your children grocery shopping with you and teach them how to calculate relative pricing – let them work out which brand of tinned tomatoes or packet of toilet paper is offering the best value. My ten-year-old son has become extremely proficient at online shopping and finding stores that are offering sales. He has learnt to do price comparisons before spending and the idea of “shopping around” also means he doesn’t buy the first toy he sees – often by the time he has shopped around his interest in the toy has diminished.
Set a goal
Goal-setting is without doubt one the best ways to teach savings. It is very difficult to explain to a young child that they must “save for the future” but if they have a specific goal in mind, help them to research and work out how much it will cost, and then encourage them to save for it. This was how I shifted my son’s mindset from spending to saving. Once he had a goal (an electric car set) he became obsessed about saving his pocket money and trying to find ways to earn more cash.
Teaching to budget
The teenage years are a wonderful time for children to learn how to work with a budget. Sit with your teenager and calculate how much they need each month for their toiletries, clothing, airtime and entertainment, then give them a monthly stipend which they must use for their day-to-day spending. In the first month they may blow it all on airtime but within a few months they will have learnt to make the money last – as long as you stand your ground and don’t give them extra cash!
Talk about your own budget
Children learn best from example. You can’t teach your children to budget if you are not doing a household budget. Discuss the household budget with your children and if appropriate, allow them to give ideas as to how to allocate that budget. Holidays are a great opportunity to involve children in budgeting by providing a set amount that the family can spend over the holiday and then researching activities or ways they would like to spend it.
This article first appeared in City Press