Money How to teach your kids fi­nan­cial lit­er­acy

It’s a parental duty to equip chil­dren for their fi­nan­cial fu­ture

Sunday Times - - Business Times - By AN­GELIQUE ARDÉ [email protected]­soblack­star.co.za

● Mak­ing sure your chil­dren are fi­nan­cially lit­er­ate is key to their fu­ture suc­cess. But many par­ents feel ill-equipped for the task.

“Chil­dren should be taught how to man­age money at school,” is the com­mon re­tort.

A sur­vey of teach­ers in the US, where per­sonal fi­nance is of­fered as a course at schools in 17 states, showed that only 20% of teach­ers sur­veyed felt com­pe­tent to teach the sub­ject.

Craig Torr, a fi­nan­cial ad­viser and fa­ther of three, says teach­ing chil­dren how to work with money is a parental re­spon­si­bil­ity that can’t be out­sourced. “If you fail in this area, you’re not pre­par­ing your chil­dren for the world,” he says.

Par­ents have the big­gest in­flu­ence on the lives of their chil­dren and chil­dren are more likely to do as you do than do as you say.

Gerda van der Linde, an ex­pert in be­havioural fi­nance, says: “This means you need to be a good ex­am­ple.”

And if you aren’t one, get your act to­gether. “There is good help out there. A con­sul­ta­tion with a top fi­nan­cial plan­ner will cost you R1 500 an hour. If bud­get­ing is your prob­lem, get help drawing up a bud­get; if you don’t have a fi­nan­cial plan, in­vest in one.”

As­sum­ing you have a fi­nan­cial plan and you’re stick­ing to it, you’re ad­e­quately equipped to teach your chil­dren how to bud­get, save and in­vest, even if you are find­ing it dif­fi­cult in the cur­rent eco­nomic times. In fact, get­ting your chil­dren to buy into your bud­get and greater fi­nan­cial plan is even more im­por­tant when money is tight.

Bud­get­ing

Ev­ery fam­ily should have a house­hold bud­get which shows in­vest­ment goals, sav­ings targets and spend­ing lim­its. Not only should it be open to all fam­ily mem­bers to view, the bud­get should be some­thing that every­one had a hand in cre­at­ing.

What you do with your money is deter­mined largely by what you value, Van der Linde says. If, for ex­am­ple, your fam­ily val­ues gen­eros­ity, your ded­i­cated giv­ing to a char­ity or a faith com­mu­nity will be a line item in your bud­get. Like­wise, if time to­gether is im­por­tant to you, sav­ing for hol­i­days would be a fix­ture in your bud­get.

When chil­dren want some­thing that hasn’t been bud­geted for, a bud­get is a use­ful tool to help them un­der­stand the choices — and sac­ri­fices — that the fam­ily might have to make to fund the de­sired item or ex­pense. So when your teenager tells you they “need” a new cell­phone, this presents an op­por­tu­nity for the fam­ily to dis­cuss the dis­tinc­tion be­tween a need and a want, whether cell­phones should be bought new or if sec­ond­hand would do, and where the fam­ily might cut back to cover such an ex­pense.

Torr, who runs a fi­nan­cial plan­ning prac­tice with his wife, Sue, says bud­get­ing teaches chil­dren about choices and that there is no end­less sup­ply of money.

“Our boys know what we earn, what we own, what we owe, and what we save.

“Years ago, they got into the habit of ask­ing us to buy them some­thing to drink ev­ery time we went out. We ex­plained that cooldrinks for all of us would cost R50, and if we spent that twice a week, that’s R400 a month or R4 800 a year — which is a surf­board. You need to put it in a cur­rency they un­der­stand,” he says.

The Torrs in­clude their sons in de­ci­sion­mak­ing around big ex­penses, such as hol­i­days. “We love go­ing to Ar­niston. And there’s noth­ing like a place right on the beach­front, but it costs dou­ble the price of ac­com­mo­da­tion a few roads from the beach. So we said to the boys: ‘We can spend a week in Ar­niston

Our boys know what we earn, what we own, what we owe, and what we save Craig Torr

Fi­nan­cial ad­viser and fa­ther of three

if we take a house on the beach or two weeks if we take a house fur­ther from the beach.’ They chose the lat­ter. We give them choices, and let them learn if they make the wrong de­ci­sions.”

The Torrs pay pocket money, but it’s not earned. “They don’t get paid to do chores; those must be done be­cause we’re a team. Pocket money is given to them to teach them to man­age money and to give them some in­de­pen­dence,” he says.

Sav­ing

Teach­ing chil­dren the dif­fer­ence be­tween sav­ing and in­vest­ing is crit­i­cal, Van der Linde says. “You save for a hol­i­day and in­vest for the fu­ture, which may be a univer­sity ed­u­ca­tion or re­tire­ment.”

Bruce Cameron, for­mer ed­i­tor of Per­sonal Fi­nance and an au­thor of a num­ber of per­sonal fi­nance books, says he ne­go­ti­ated with his chil­dren their pocket money and all sav­ings goals. “For ev­ery cent they put away for longer-term sav­ings I would match with the same amount. For ev­ery cent they with­drew be­fore the tar­get date, I would take dou­ble the amount back. None of them ever with­drew. At age 18, they reached their sav­ings targets to travel, buy a car, et cetera. One of them still had sav­ings into her late 20s.”

Van der Linde says that when her daugh­ter wanted to take an over­seas hol­i­day dur­ing high school, she also in­cen­tivised her to save by match­ing her sav­ings. “It’s a good prin­ci­ple, but chil­dren must be en­cour­aged to save be­cause it’s the right thing to do and must have an in­ter­nal mo­ti­va­tion to do the right thing, with­out ex­pect­ing a re­ward.”

This goes hand in hand with teach­ing them about money, she says. If you in­vest, you ben­e­fit from com­pound in­ter­est.

“Per­haps we can get them to re­ward them­selves.

“So, if your child man­ages to save R10 000 by the end of year, they could in­vest R8 000 and use R2 000 to treat them­selves.”

In­vest­ing

Torr says that be­fore his sons re­ceive their pocket money, an amount is de­ducted and in­vested in a unit trust fund on be­half of each son. “We agreed to the amount that is de­ducted and that it’s for big-ticket items, but there’s no planned date or time when they will get to cash in that in­vest­ment.”

Chil­dren need to be taught that re­tire­ment is an in­vest­ment goal for a time in life when you can no longer earn money to sur­vive, and if you haven’t in­vested for that sea­son of life, you will be des­ti­tute.

Your chil­dren can learn valu­able life lessons from you telling them about how you are in­vest­ing for re­tire­ment. Im­press upon them the im­por­tance of start­ing to in­vest for re­tire­ment from their first pay cheque.

If chil­dren know that they are likely to be the ben­e­fi­cia­ries of your in­vest­ments, they may be more in­clined to ap­pre­ci­ate the lifestyle sac­ri­fices that need to be made by the fam­ily now.

Pic­ture: 123rf.com

In­clude your chil­dren in big fi­nan­cial fam­ily de­ci­sions such as hol­i­days.

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