My 10-year-old son stumped me the other day when he asked me why adults should be allowed an overdraft but he was not allowed a similar facility on his monthly allowance.
The conversation had been going back and forth at home after I realised that I had failed to adequately budget for my monthly expenses and would need to either move money around or ask the bank to provide me with an overdraft facility. To add to my woes, my back-up debit card had been skimmed.
Having burnt a lot of money blowing up a business between 2006 and 2008, I became quite familiar with my overdraft and credit card facilities and have been loath to add further debt to my name. However, my first instinct was: “This is an emergency, I need cash now and all I have to do is fill in a form and I’ll probably have access to some quick credit that can take me to the end of the month.”
Unhappy with the prospect of waiting, my son responded: “Dad, you have money in your wallet, make that last for three days.”
Initially I thought that wasn’t a very bright or feasible idea but then he started pointing out that with the two of us effectively living the bachelor life, we could make do for a while if we just changed our habits. “You’re always telling me that I can only spend money I have, why should you be allowed to spend money you don’t have?” was the argument he put to me. I couldn’t fault it.
By taking away the allure of credit for even three days, you win a minor victory in taking control of your finances. Being forced to budget for a 72-hour window and not swiping every time you “need” something is an important exercise. Being taught this lesson by a 10-year-old is humbling.
It is clear that this kind of monthly household cash-f low crunch is not unique to me. Credit bureau TransUnion recently released its Consumer Credit Index (CCI). The index sits at 43.4 for the third quarter of 2013 and ref lects a 3-year decline from the highs of 64.6 in 2010. This is significant and while the data says that “distressed borrowing” is not on the rise, there is clearly an increase in demand for unsecured lending products.
Apart from the feel-good factor of actually staying within a budget, you might ask why this matters to you, the reader. If you have kids, you might want to consider research carried out by professors Sarah Brown and Karl Taylor, of the Department of Economics at the University of Sheffield in the UK. They point out: “The finances of children are arguably driven by two main sources: pocket money or allowances financed by parents; and earnings from part-time work, such as paper rounds and babysitting.”
Ergo, you, as a parent, have an enormous impact on how your kids develop their financial skills.
For me, the real kicker came from the research that demonstrated that not having a computer in the household and being in a single-parent household are both positively associated with the probability of the child not saving, which accords with intuition in that single-parent households are more l ikely to be f i nancially constrained and, hence, income received by the child may be required for immediate consumption purposes.
Single parenting is not looking so hot right now.
Finally the paper concludes: “It is apparent that the extent to which parents share their expectations regarding household finances with their children may also inf luence the saving behaviour of their offspring. The diffusion of information regarding f inances among household members thus appears to play an important role in the saving behaviour of children, especially for girls.”
Maybe we need a few more 10-yearolds with common sense out there to make sure that middle-class South Africa breaks some of its bad spending habits.