Making smart financial decisions is important to ensure that children grow up to be economically active citizens and are empowered to build a bright future for themselves.
Nelly Mofokeng, MD at Junior Achievement South Africa (JA South Africa), shares four money lessons that will help your child develop the necessary skills to make smart financial decisions.
Needs versus wants
The first thing to teach a child is to recognise the difference between a need and a want. Grasping this concept will have a positive impact on a child’s financial future. Additionally, it is not enough to simply recognize the difference, parents should explain why money gets spent on a need before a want.
One of the best ways for children to understand how to differentiate between wants and needs is to take them shopping. As you put things in your basket, ask them if the item is a want or a need. Let them explain their decision, then give them your answer.
Creating a budget
While children do not have to pay rent or buy groceries it is important to teach them how to budget effectively from an early age. Budgeting provides the critical foundation they need to manage their money in the future.
Start small by giving them as little as R10 and telling them how much of that they need to save, spend and give. Give the money in coins so that your child can see his/her money jar fill up or get depleted. This simplified budget will help teach your child about the value of a rand, how to make choices and how to prioritise.
Children need to learn to earn money just like they would in the real world. Parents can teach this by paying them small amounts for additional chores like washing the car, cleaning the bathroom and polishing shoes. When children work hard to earn money, they are less likely to spend it foolishly.
Saving money for a goal
Saving is difficult to master for people of all ages and children rarely wait for anything these days. They have instant access to information, TV shows, books, music, etc. Ultimately this translates into an attitude of ‘I want it now‘. It is important to control this mindset by teaching your child to save for what they want.
“Encouraging saving and smart spending habits is a crucial step towards building a money-savvy future. Financial education also gives children the confidence to make informed money decision,” advises Nelly Mofokeng, managing director at JA South Africa.