With Global Money Week taking place from Monday until Sunday, Old Mutual believes South African parents should be encouraged to take action to raise money-smart children.
To teach financial understanding to children in the current age of technology and advanced information-sharing, these tools present parents with opportunities to coach their children on basic money matters.
Old Mutual Advice Manager Priya Naicker believes that lack of financial literacy and understanding can severely impact how South Africans manage their money.
“Whether our children grow up to be business leaders, biochemists, chefs or entrepreneurs, they will need to make a host of financial decisions on a regular basis. Choosing pay structures, understanding their individual taxes, making informed decisions on debt based on interest rates and fees, and balancing households budgets are just some of the financial challenges that will continue to face the next generation,” she said.
Naicker suggests these four ways to start the money conversation with your children:
- Income vs expenses
Discuss the relationship between income and expenses with your children. Not only it is important for your expenses to be lower than your income, but you need to budget and plan what you will spend your money on. By apportioning your spending in line with what matters to you most, as well as saving toward goals, you will limit the temptation to spend impulsively.
- Make earning interest an exciting thing to do
Help your children understand the advantages of saving for the things they want in life (rather than taking on debt to have them) by introducing them to the concept of earning interest. Explain how compound interest helps your savings to grow. Also explain the flip side of compound interest: how it makes borrowed money (debt) spiral out of control.
- Help them set money goals
The next time your child wants the latest PlayStation or mountain bike, use the opportunity to have a conversation about setting money goals and creating a plan to achieve them – and emphasise the importance of sticking to their plan. This will help them see the benefits of good money habits.
- Teach them about real money
The cashless world of credit cards and smartphone payment apps can make the act of paying very abstract and intangible. Next time you’re paying with your card or smartphone, talk to your child about basic banking concepts. Point out that paying with a credit card simply means you have to repay your bank later – probably with interest. Explain how technology has made it easy to pay for goods, but also easy to get into debt.
READ MORE: How to raise financially savvy children
“Upskill yourself to ensure that you live the money values that you would like your child to see and follow. Know better, and do better. The growing trend in open online courses like Old Mutual’s Moneyversity and free apps like 22seven mean we all have access to financial education and personal financial insights to enable us to take better action,” says Naicker.