Switching your own mindset around money now, will go a long way in improving the financial literacy of the next generation.
Christian Hugo, Solution Strategist for FNB Money Management, says it’s not enough to simply tell your kids that they have to save or that you can’t afford to buy them the latest TV game – you need to ‘walk the talk’ and help them understand how to manage their money from an early age.
Hugo provides the following tips to help you switch your mindset and up your child’s financial literacy levels:
- Talking about money isn’t only for grown-ups
Children take their cues from you as their parent. Without necessarily going into too much detail, let your children hear you talking about finances as a family. Little ears are always listening, even when you don’t think they are, and this is a good opportunity to let them see that talking about money should be an open and honest conversation.
“You could include your children in a regular family meeting at the beginning of the year to discuss expenses and goals for the next 12 months. For example, where do we want to go on holiday this year? Even if it’s just a trip over a long weekend, you can plan what activities you want to do over that weekend, how much you need to save, and where you can cut expenses so that you can save,” Hugo notes.
- Teach them about the importance of delayed gratification
The Stanford marshmallow experiment is a renowned example of the difficulty of waiting for a desired reward. 50 children were led into an empty room one at a time and offered a marshmallow. They were told they could eat the marshmallow immediately or they could wait until the adult returned to the room in 15 minutes and they would be rewarded with two marshmallows. The interesting conclusion is that researchers measured the children’s progress over 40 years and the ability to delay gratification was seen as a predictor of the ability to achieve long-term goals.
“Teach your kids that budgeting and controlling their spending is a habit they can cultivate. One way to start is by having a conversation with your child about what they value or what they want. Get them to write it down; it could be anything from the latest toy set to a trilogy of books or a TV game. Then get them to write down how much it will cost and how much money they have now. Now chat to them about how they are going to save up to afford the item they want. Do they save money given to them as birthday gifts or do they receive pocket money? Are they willing to do chores around the house to earn more pocket money,” says Hugo.
“Then, in three months if your child wants to buy something different, you have the opportunity to point out that this will mean delaying their initial goal for instant gratification now. These conversations can help develop awareness of how decisions made now can impact you later,” he says.
- Use age-appropriate approaches
Hugo says you should ideally start the money conversation with your kids from an early age. You can teach them the principle of interest when they are as young as five, by simply offering to increase their allowance based on how long they are able to save it. For example, you may pay your five-year old R20 a week for pocket money. If they have not spent any of this pocket money at the end of the month, they will have saved R80, and you can give them an extra R40 as “interest” that they would not have earned if they had spent any of their money.
- Get them more involved, the older they get
As your children get older, the conversation switches up a level and you can teach them the differences between saving for the short term (two years or less); saving for the long term (two to five years) and investing for the long term (retirement or saving for education, a gap year , a car or a deposit on a home loan). These are important foundational lessons that they will now take with them into adulthood when they need to start managing money for their families.
- Start talking about goals and actual costs
When it comes to investing, you can educate your children about realistic goals and actual costs. For example, start talking about how much it costs to buy a house, how much they would need for a deposit and what are the upfront costs they would have to budget and pay for.
A quick internet search on property websites reveal that a R3 million property would require a minimum deposit of R300 000, a bond registration fee of R44 983 and property transfer duty tax of R189 211 translating to a total upfront cost of R534 104.
“Unfortunately, currently the money topic remains boxed and if you want to positively influence your child’s relationship with money from an early age, you need to start having honest conversations with them so that their legacy can be one of sound money management and financial growth,” he concludes.