Zululand Observer - Monday

Financial skills the best headstart in life


Children need to be taught about the value of money from an early age. ‘Introducin­g kids to money and how it works should begin at home. We want to avoid sending our youth out into the world without a good working knowledge of how finances function,’ says Craig Hutchison, CEO Engel & Völkers Southern Africa.

Teaching children the fundamenta­ls of earning, saving, and how to deal with money will be extremely beneficial to them in the long run and is essential for their future financial success in adulthood.

The possibilit­ies

If your child starts saving a sum of money every month and increase it with a chosen percentage per year, by the time they reach 21, based on a normal interest rate on savings, they might be able to start climbing the property ladder.

This could give them an advantage, to use either as a bond deposit, bond and transfer costs or even their very first rental deposit.

‘Starting off with a property at such a young age will mean that they could potentiall­y buy their second home by 25 and grow their portfolio from there,’ Craig added.

Apart from saving, you need to teach your kids about the hidden costs of home-ownership, such as taxes, home insurance and interest on the mortgage, utility payments, maintenanc­e and repairs.

If you have young adults still living at home, insist on contributi­ons to the household.

Ask them to pay rent and contribute to some of the house bills such as groceries and utilities, so that they can have a sense of what items cost and start working that into their budgets, preparing them for home-ownership later.

Seven things children need to know about money 1. The concept of money

Children need to learn that money is a helpful tool that makes it easier to get what we need and want, now and later.

‘Allowing children to role-play scenarios where they pretend to purchase something is a wonderful way of letting them learn about the value of money, how much things cost, how money works and the importance of counting,’ says Chiquita Patrizi, spokespers­on for Prima Toys.

2. The value of working for money

Children must learn that money doesn’t magically appear; it must be earned. Give your kids appropriat­e paid jobs in addition to expected household duties. As they get a little older, encourage them to become entreprene­urs.

3. The importance of saving and sharing

Kids need to know that it’s not OK to spend all of their money at once.

Help them learn this by teaching them the 20-10-70 rule: save 20% - always pay yourself first; give 10% - this teaches them to help those less fortunate or to support causes they care about; spend 70% - this teaches them to spend less than they earn, which is the cornerston­e of personal finance.

4. The difference between needs and wants

Teens have a hard time distinguis­hing true needs from actual wants. For example, clothes are a need, but brand names are a want, food is a need, but fast food or pizza is a want. To help teens learn the difference between the two let them do their own clothes shopping. Determine a shopping budget and create of list of items they need to buy. Give them a gift card that can be used in any store at the mall and let them make the difficult decisions when it comes to limited resources and unlimited options.

5. How credit works

Just as your children notice you’re using money to buy things, they’re also likely noticing that you’re paying with plastic. Teach your kids that whenever you use a credit card or get a loan, the bank is providing money for the purchase and you have to pay it back. If you don’t pay all of it, you will have to pay interest on the remaining balance. That interest can add up over time, so you end up paying more than the actual cost of the item you bought. Teach your kids to spend only what they can afford to pay off each month, so they don’t end up in debt and don’t harm their credit score.

6. The bene ts of investing

Between the ages of 8 and 12, introduce the concept of investing - that the money you make can make even more money if you invest it wisely. Investing requires taking a risk, with the expectatio­n of achieving a return. Discuss how much risk you should be willing to take when investing. Explain that money invested can grow over time thanks to compound interest, which means that interest is paid on the amount invested plus the interest that grows on that investment.

The earlier you start investing, the more time you give your money to grow and the more you’ll have. Open an investment account together using some of the children’s money.

7. The concept of net worth

When your children are teenagers, you can start to explain the notion of net worth. It’s the difference between what is owned and what is owed. Net worth is a true measure of financial health. You could earn a lot of money, but if you also owe a lot of money, you could have a negative net worth.

A money teaching guide How to save (age 3-6)

• Teach them not to spend money immediatel­y, but to keep it for future purchases. • Use different envelopes for

long- and short-term goals. • Help them calculate how much to save each week. Keep a realistic time frame otherwise they might get frustrated or bored.

Earnings and spending (age 5-8)

• Have them do different chores in exchange for money. Add their earnings to a jar so they can see the money building up over time. • When they shop, let them pay for their item themselves.

Opportunit­y cost (age 7 - 11)

• Teach them the benefit or value of something that must be given up to gain something else.

• Give them R50 and ask them to pick three R20 items they would like to buy. Now let them choose two items, because they can’t afford all three. Explain that sometimes we need to make financial decisions based on the money we have.

Give your children a headstart in property from an early age by teaching them the correct skills

Budgeting and investing (age 13 - 16+)

• Give them a set amount of money to buy family gifts. Help them decide on how much to spend on each person, and how to choose items within their budget.

• Teach them that paying for university now can earn them money in the future. Show the different costs of the various university courses, but also examine the different earning potentials of the profession­s to show them how an investment can pay off later.

• Help your children to open a cheque account and teach them how to manage/balance their accounts. This will teach your children how to keep an eye on the bigger financial picture.

• Spend time with your children learning how the stock market works, what it is and why people invest in it. • We all want our kids to be financiall­y stable and have a genuine respect for the value of the money they will be earning.

• Once they understand and see the benefits and rewards it brings, it will become part of their lives forever and they will then always respect money and know how to work with it, which is the ultimate goal of every parent.

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