Most parents do a good job at raising well mannered, cultured and respectful children, but often neglect teaching them how to be financially savvy – an important skill they’ll need in their future success.
The most important tool in managing finances is learning discipline and being able to delay gratification. Parents are also responsible for setting a good example as this is an important part of learning.
Having a child is a life-long commitment and avoiding the topic of money and financial management will only do your child and yourself a disservice.
When creating a foundation for smart financial behaviour, these are some of the key areas to focus on:
- How to find a balance between spending and saving
- The power of compound interest
- How the stock market works
How can parents encourage children to feel empowered rather than entitled?
Money forms part of our everyday lives and financial literacy gives us the ability to make informed and sound money management decisions on a daily basis.
“Decisions such as purchasing goods, saving and investing can all be executed correctly if there is a sound financial literacy base, explains Sibiya. The sooner one acquires these skills the better, so when better to start than when your kids are young”.
Sometimes parents are hesitant to talk about money to their kids because they feel that they’re not financial experts, their children are still too young to understand financial concepts or their children might make the same money mistakes as them. Sibiya explains that there are different basic concepts and practices that you can teach your kids at different ages that will equip them with the knowledge to make sound financial decisions in the future.
How can parents help their children to develop healthy habits around money?
- Emotion and money don’t mix
Learning to detach emotions from money will help your children make good decisions.
There is nothing like the rush of getting the first pay cheque, receiving a bonus or buying something that you really want. There is also stress, anguish and sleepless nights when you don’t have enough income to cover your bills.
“Many of the big financial pitfalls are when people spend money based on emotions rather than logic, says Sibiya. Unfortunately, this is a very real problem for adults, so if you can teach your child to really understand why they need to purchase something, rather than doing so without thinking it through – it will go a long way to helping them in the future”.
- The value of money
Until your child earns their first salary or even beyond that, money is usually an abstract concept . Buying a new pair of shoes has no bearing on the food that they are eating or the school they attend.
“In order to make money a reality in their lives, you will need to teach your child the value of money” says Sibiya.
Discuss what they want to have, whether it is clothing, a toy or even airtime. Sibiya adds: “Use that in relation to something you use as a family every day, such as milk or bread. If they want a R50 item, discuss how many loaves of bread that could be.
You can even put something like their school fees in context by making them work out how many loaves of bread it would take to pay” she says.
- They are in control
When your child reaches adulthood, they will need to understand that they are the only ones in control of their finances.
The concept that you control money and not the other way around is difficult for even adults to sometimes understand. “The most important aspect of this is that every financial decision, even seemingly small and insignificant has an impact on your money, she says”.
The control exerted over finances will determine if they have a solid savings plan or are swimming in debt.
All parents want the best for their children, so giving them the skills to control their finances is a lesson that will help them throughout their lives.
Eunice Sibiya, head of consumer education at FNB shares tips for parents on how to raise financially smart children
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