Raising money-smart children for tomorrow

“Money doesn’t grow on trees.” How often did you hear this or similar sentiments as a child when you wanted a treat or a shiny new toy?

While such phrases are well known, they aren’t effective tools to teach financial understanding to children in the current digital age. Fortunately, there are many free resources and financial education tools available, particularly in digital and mobile app formats.

With my own child I began discussing investment concepts such as interest, asset allocation, shares and fees very early in her savings journey, initially using simple drawings to explain. The underlying principle was to have her always understand and take accountability for deciding where her money was being saved or invested. Over time, she began asking more questions and became more conscious of the fees she paid and the growth earned. She has become far more discerning about what she spends her savings on. Discuss the relationship between income and expenses with your children. Not only is it important for your expenses to be lower than your income, but you need to budget and plan what you’ll spend your money on. By apportioning your spending in line with what matters to you most and saving toward goals, you’ll limit the temptation to spend impulsively. Help your children understand the advantages of saving for the things they want in life (rather than taking on debt to have them) by introducing them to the concept of earning interest. Explain how compound interest helps your savings to grow. Explain the flipside of compound interest: how it can make borrowed money (debt) spiral out of control. The next time your child wants the latest Playstation or mountain bike, use the opportunity to have a conversation about setting money goals and creating a plan to achieve them. The cashless world of credit cards and smartphone payment apps can make the act of paying very abstract and intangible. Next time you’re paying with your card or smartphone, talk to your child about basic banking concepts. Point out that paying with a credit card simply means you have to repay your bank later – probably with interest. Explain how technology has made it easy to pay for goods, but also easy to get into debt.

Remember that actions speak louder than words, and it’s your own money habits that will most likely influence your child’s relationship with money.

Upskill yourself to ensure that you live the money values that you would like your child to see and follow.

Priya Naicker is advice manager at Old Mutual.