Savings culture for kids
PAYS DIVIDENDS: IT IS VITAL TO LEARN TO MANAGE MONEY RESPONSIBLY FROM YOUNG AGE
The obligation to save for retirement falls to individuals more and more now.
Your money experiences from childhood have a significant impact on how you see money as an adult. The importance of pocket money cannot be overemphasised.
Banks are offering special accounts for children and there are a number of applications that you can download to help with this. Children learn money lessons more easily when they work with actual cash.
Brenda van Zijl, financial advisor at Verity Financial Services, explains: “Give your child three jars: one for saving, one for giving and one for spending.”
The save jar is to learn delayed gratification and the impact of compound interest. Put incentives in place, such as R100 bonus when they have saved R500 and R200 when they have saved R1 000. They can either keep accumulating the money or spend it after a year. Discuss what they are saving for and pool it with birthday money to buy something special.
The give jar can be accumulated or used as they receive it. They can give the money to any individual or cause that they want to donate to. It creates empathy with others and an awareness of the privilege that they are growing up with.
The spending jar is to teach the concept of budgeting. “My 13 -year -old daughter had to calculate how much she needs for toiletries and tuck money and present her budget to me. She receives money every Sunday and has to pay for these items as and when she needs them.
“My 10-year-old son loves sweets and computer games. He uses his spending money for these, but he is currently saving up to replace his lost school blazer so has to forego the treats for the next couple of weeks,” says Van Zijl.
It is vital to learn to manage money from a young age. As children get older their responsibilities should increase and we need to let them make mistakes in a safe environment.
The jump from pocket money to long-term saving for retirement is a leap too far for many young adults to make.
“I agree with the concept that you should save from your first pay check, but the goal of the savings should be aligned to the young adult’s frame of reference.
“Most people aspire to own their own home. Saving for a deposit on a property is something many young adults can relate to.
“It is a tangible asset and you can use a money market account with your bank to accumulate the funds. As your salary grows and you start paying more tax, you could consider a retirement annuity investment. It has the dual benefit of creating a nest egg and reducing the tax you pay.”
Fewer companies offer pension funds these days and the obligation to save for retirement has become each individual’s responsibility. It is very daunting to be faced with this in your 20s. If you have learnt to manage your pocket money and then start saving more, you will be much better equipped to make decisions on retirement products.