Lance Solms, Managing Director at Itransact, shares some advice every parent should give their kids so they can secure their financial future.
As soon as your child gets their first pay cheque, they should seek a financial advisor to help with retirement planning. Keep in mind that savings accumulate and the interest compounds without taxes, as long as the money is not withdrawn, so it's wise to establish a retirement investment vehicle early in their working life.
Another reason to start saving early is that the younger they are, the less likely they are to have burdensome financial obligations: a spouse, children and mortgage, for example. Starting to invest before financial commitments begin piling up means they’ll probably also have more cash available for investing before retirement.
Time spent developing a budget is time well spent. Creating and sticking to a budget will allow your kids to determine in advance whether they will have enough money to do the things they need or would like to do. Many young people make the mistake of spending more than they have in their pocket. As Warren Buffet said: “spend after saving, don’t save after spending”. This is why they need to be realistic about their needs and wants.
Knowing the difference between a “want” and a “need” can help save money. Many of the items they spend money on are things that they want rather than need. Teach them that if it’s not needed for survival, then let it go – at least until they can afford it.
Explain the money jargon
Being financially educated takes us a step closer to being savvy and responsible with our money. With so many different offers on the market, it can be difficult to cut through the financial ‘jargon’ and make sense of what’s best for managing their money. Not understanding the meaning of terms such as ETFs or interest repayments on an overdraft can really impact their financial futures.
Avoid loans, save, and pay cash
As we all know, borrowing money can land a person in serious trouble – just as savings can accumulate interest, so can debt. Teach your kids they should avoid creating bad debt as far as they can: rather save up for that drum-set or a decent deposit for a new car than borrow thousands in cash that will make it hard to pay it back.