How to make the money lessons you teach your children count

Most of us acquire our formative attitudes toward money from our parents, and these will shape our outlook for the rest of our lives.

So, what are the financial fundamentals you should teach your children and when should you teach them?

According to a University of Cambridge study commissioned by the UK’s money advice service, most children are capable of understanding the value of money, delaying gratification, and understanding that some choices are irreversible and will cause them problems in the future by the age of seven.

A study conducted by the University of London in 2000 on South African children aged seven to fourteen confirmed this.

It discovered that their attitudes toward banking and money were similar to those of children in other countries, with rural children having less understanding than their urban counterparts.

Neven Narayanasamy, a specialist loan provider and father of two, believes that the earlier children can begin learning about money, the better.

In doing so, it’s best to take a positive, practical reward-based approach, explaining that money is a tool that can bring benefits if they understand how to use it. Don’t stress or scare them, and keep in mind that each child is unique, so you may need to adjust your approach and timing.”

Neven emphasizes the importance of age-appropriate money lessons and suggests the following guidelines:

Ages 3 to 5: You can’t always get what you want, right now:

When the Rolling Stones first sang “you can’t always get what you want” in 1969, they were correct. They are still so after 54 years. From takeout to online shopping, we live in an age of instant gratification.

While your three-year-old isn’t likely to be ordering superhero outfits online during naptime, teaching children early that some things are worth waiting for may prevent them from racking up credit-card debt on trendy clothes or the latest technology later in life.

If your child wants a specific toy, explain that they will need to save for it. Have a savings jar or piggy bank where you can put birthday money or small rewards for helping others, good behavior, or accomplishments.

Set them up for success by ensuring that the goal is attainable and that they do not have to wait months before they can see what they are saving for.

Each time your child adds money to his or her savings account, assist him or her in counting it and calculating how much more is required to reach the goal.

It’s a good idea to let younger children handle money while we supervise. Physically handing over money and counting it will boost their confidence in handling money and make them think twice about how they spend it.”

Ages 6 to 10: You are accountable for the financial decisions you make:

By explaining financial priorities, you can teach the fundamentals of financial decision making.

As an example, tell them that when you get paid, you must first pay your bills, such as your mortgage or rent. Then you must go shopping.

You’ll have something left over if you do this carefully and don’t spend money on things that are too expensive and that you don’t really need. You can save some and use a portion to do something fun together.

Practical experience is the most effective way to cement these lessons. When they earn pocket money for household chores, assist them in creating a budget.

First, they’ll have to pay bills, such as contributing to the upkeep of a pet. Bring them along when you go grocery shopping, and if they want something special, ask them to contribute as part of their grocery budget.

Remind them that they must save some of their money and not spend it all. If they haven’t spent too much, they should be able to treat themselves.

The goal is to give children a practical understanding of how to manage money by using familiar examples. The more you can do this, the better, because they’re far more likely to understand it than abstract explanations,” Neven says.

Ages 11 to 13: the sooner you begin, the sooner you will achieve your goals:

This is the time to introduce the concept of saving for long-term goals. Set a goal for something expensive that he or she truly desires.

Children in their pre- or early adolescent years are often reluctant to save because they want to buy things like school snacks or more airtime.

Setting a higher goal teaches them that the opportunity cost – what they must forego – allows them to save more and reach their goal faster.

You can also teach them about compound interest and how, by saving over time, they benefit from the compounding effect by earning interest on both the money they’ve saved and the accumulated interest.

More information on compound interest can be found at www.directaxis.co.za/find-an-answer/what-is-compound-interest.

Of course, when saving larger sums of money, it’s more prudent and secure to use a bank account instead of a piggy bank or savings jar. FNB, for example, provides under-18 transactional accounts with no fees.

They will also learn how to manage a bank account as a result of this.

Ages 14 to 18: understand how to borrow wisely:

Children’s earning potential grows as they get older. They could progress from doing housework to getting a part-time job.

Typically, their costs rise as well. They might want to buy a scooter or motorcycle to get around, or even save for a car.

They will almost certainly request a loan at some point. When they do, set a goal for how much they must earn before you will match or lend them the rest.

Determine a reasonable loan period and repayment schedule, and charge them a reasonable interest rate.

Explain that there will be penalties if they do not make their payments on time, and that you will be less likely to lend them money in the future.

While they may think you’re being harsh, you’re teaching them an invaluable lesson about the importance of paying their bills on time and how to build a good credit history.

You can use a similar approach as they get older to teach them the difference between good and bad credit, such as loans for tertiary studies or starting a business instead of borrowing money to fund an unaffordable lifestyle.

As a parent, you’ll never stop teaching your children about money. The most important lesson is to remember that you are a role model.

If you’ve ever heard a child use an adult word or expression that they didn’t learn in school, you’ll know that they react to everything they hear or see around them. The same holds true for how they learn about money. Remember that, as well as the influence you have not only in terms of what you teach them, but also in terms of your own financial behavior,” Neven says.

More information about money lessons for kids can be found at: https://www.directaxis.co.za/make-a-plan/how-to-teach-kids-about-money

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