How To ... Create a?financially?savvy kid

2014-06-16 08:00

Even if you have a natural saver on your hands, you still need to teach your child about budgeting and investing, and how to shop mindfully by comparing

prices and understanding the value of what he or she is buying

Whenever I meet people whose finances are in good order, they invariably tell me it is because of the lessons their parents taught them.

As young children, they were warned against taking on debt and were taught about the virtues of saving. They worked for their pocket money and their parents taught them about budgeting and saving rather than handing out cash on a whim.

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 pockets and they are not happy until every last cent is spent – but that doesn’t mean you can’t change their behaviour.

My first-born is a natural saver. He is quite happy to hoard all his pocket money, splashing out occasionally on books. His brother 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 when his brother’s money box was full while his was 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.

But through teaching him about money and the value of goods, he has now saved more than R1?000. Some children might need more encouragement than others, but if you put a plan in place, your child can learn valuable financial lessons.

Open a bank account

1 Saving money in a piggy bank is a tangible way to teach children about money. But there does come a time when a bank account is more appropriate.

A moneybox never encouraged my son to save; being able to see the money made him want to spend it. When he was about eight, 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 pocket money, he was able to save towards things he really wanted, rather than wasting it.

A bank account teaches children about banking and you can turn it into a family project. Help your child research the various bank accounts and understand the most cost-efficient way to bank (see sidebar on bank accounts).

Have a separate savings account

2 We took the bank account a step further by linking it to a savings account into which we transferred any birthday money. In order to spend it, he first had to transfer the money to his transactional account – so this further encouraged saving.

For older children who might have longer-term goals, opening an investment account 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 to R300 away each month into a unit trust account. 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

3 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 that can be linked to chores in the home. By relating money to a chore, they learn money is worth something. It is also a great way to get the dog walked and fed.

Teach them to compare prices

4 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 10-year-old son has become extremely proficient at online shopping and finding stores 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

5 Goal setting is without a doubt one of the best ways to teach savings. It is difficult to explain to a young child he or she must “save for the future”, but if the child has a specific goal in mind, help them do research and work out how much it will cost and then encourage saving for it. This was how I shifted my son’s mind-set from spending to saving.

Teaching to budget

6 The teenage years become a wonderful way to teach budgeting. Sit with your teen and calculate how much they need each month and give them a monthly stipend they must use for day-to-day spending. In the first month, they might blow it all on airtime, but within a few months they will have learnt to make the money last.

Talk about your own budget

7 Children learn best by example. You can’t teach your children to budget if you are not doing a household budget. Discuss the household budget and, if appropriate, allow them to give ideas towards how to allocate that budget. Holidays are a great opportunity to involve children in budgeting by providing a set amount the family can spend over the holiday and then researching ways to spend it.

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