What should your child know about money?

21 July 2014

There are three basic things you can do with your money – spend it, save it or give it away – and it’s important for your child to get the opportunity to do all three with their own money. Here’s how to help them do it safely.

There are three basic things you can do with your money – spend it, save it or give it away – and it’s important for your child to get the opportunity to do all three with their own money. Independent financial adviser Sheldon Loxton gives advice on how to help your child do this safely.

He explains that parents often ask him what their children should know at different ages. “All kids need to know the same things; it just gets more in-depth as they get older. The most common phrase I often hear from older people is, ‘I wish someone had taught me that when I was younger’. It is this phrase I always refer to when answering.”

Why should children spend money?

Unlike the notion that kids should save their money until they’re older and more financially savvy, Loxton believes children should be given the opportunity to spend their money. “Hoarding money in an account is not affording your child the opportunity to learn about money and one day treat it correctly.  They need to learn how to become wise spenders and make mistakes at an early age with small amounts of money,” he says. “They also need to learn that spending their money is a part of life and that one day they will have to part with hard-earned money.”

Loxton says a lot of children aren’t afforded the opportunity to spend their own money on regular occasions and then feel overwhelmed by having to do it later like when they go to university. “They are then overwhelmed by their money and often waste it as they are not accustomed to budgeting. Being able to spend money correctly can be more beneficial than saving money poorly.”

Why do children need to save? 

Loxton says South Africans are known for their poor savings culture. “I believe that a lot of it stems from a discipline which is not instilled in us from a young age. Saving is a habit which needs to be formed.”

He adds that children who’ve been encouraged to save on their own from a young age learn to delay gratification. If done over time they see the benefits of saving towards something. “Saving does not equate to Mom or Dad putting money away in an account on a regular basis. The savings which I refer to here is when your child is in control and involved in the process. They are therefore aware of the money, and where and why it is being done. My eldest daughter is now eight years old and has become a conscientious saver as a result of a weekly allowance which she allocates to spending, saving and giving. She wasn’t always like that!”

Why do children need to learn to give?

Loxton is of the opinion that just like saving, giving is something which doesn’t always come naturally to us. Spending is easy, but saving and giving away our money requires guidance and assistance from parents.

“As a parent I not only want my two girls to spend wisely and be savvy savers but I would like them to grow up understanding that they are more fortunate than others and that they are in a position to bless someone or something else by being generous with a small part of their pocket money. Again, the giving should not be a matter of Mom or Dad scratching around in their purse or wallet for change but should come out of the money which belongs to your child. It is easy to give someone else’s money away but requires a sacrifice to part with your own money.”

Loxton encourages parents to be involved in teaching children to handle their spending, saving and their giving in order to help them cultivate a habit of financial health.

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