Pocket-money

Finweek English Edition - - MONEY - Marc Ash­ton

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.

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