Throughout Financial Literacy Month (or Financial Education Month, as we call it in South Africa), we produced a weekly column for local tabloids and corresponding social media posts that shared tips about the ways families could improve their financial literacy and savings skills. But perhaps the most important element of that outreach was a piece about how to talk with kids about money.
We all wish we knew a little more about money matters before, right? According to Investment Consultant & Group RA Manager at 10X Investments Brett Mackay, it is crucial to teach children to respect money from an early age and we are sure we can all agree. Check out the starter points on how to set your kids up for financial success from Brett below.
Introduce the piggy bank
Brett believes pocket money is a good thing and can be used as a tool for learning about saving, budgeting and even delayed gratification. Buy them a piggy bank, set up a savings account early, and help them to save and spend their own money. Children should know that when their pocket money runs out, it runs out. Unless of course there is a way to earn a little more by taking on extra chores around the house or garden. By encouraging your kids to earn money through work you are also teaching them the value of money.
Show them a basic budget plan
Once they start earning money they need to know how to budget. By creating a budgeting plan they will find it far easier to keep track of how much they can spend and how much they can save.
Advise saving for emergencies
Having some funds that you can access quickly when you or someone close to you gets into trouble will give you a lot of confidence, as well as some choices and comfort at a difficult time. Having access to emergency funds also means that you don’t need to take money out of your investments, which could have a negative effect on compound growth.
Even if money changes drastically in the future and we start using alternative currencies, or even different it is important to teach your children about good financial habits. Making informed choices about budgeting, spending and saving will set them up to avoid the mistakes that so many South Africans have made before and are still making today.
Teach them about the complicated stuff
Teaching your kids about slightly more complex concepts, such as building a share portfolio, or investing in index funds for low-cost long-term wealth creation. Set up a Tax-Free Savings Investment for their children as soon as they are born. This will give them a great start in life as they will have many years of compound growth ahead of them.
Parents should talk to their children about the importance of taxes too. It is helpful to understand why we pay taxes and what to expect when you start working. Some people never understand taxes, why we pay them and why certain expenses, such as saving for your retirement attract tax relief.
Lastly, we all need to understand the difference between big, value-adding purchases, such as an education, a home or even a car; and nice-to-haves, like dinners out and new clothes. The earlier you start to understand the difference between what some people call good credit and bad credit the sooner you can start making good choices for yourself.