Most parents will agree that teaching children about money is important, but there’s more to it than telling them that saving is good or to be careful of debt.
Marlies Kappers, a mother and head of marketing at financial services provider, DirectAxis, gives us advice on raising financially responsible children. She says while explaining concepts such as budgeting, saving and lending will give children an understanding of how money works this must be backed by practical experience.
“The earlier children can start learning about money the better but be careful not to scare or stress them. Also remember that every child is different, so consider the most suitable approach.”
Children respond to what they see and hear around them, so they’re more likely to understand if you explain how the household budget works.
The conversation may go something like this: When mom and dad are paid, they first pay the bills, such as school fees. Then they buy groceries. This is because grocery bills can differ depending on what’s needed and how much money there is to spend. Some of what’s left is goes towards savings and any extra can be used for doing fun things, although having fun doesn’t need to cost anything.
“It’s simple but it gives children an understanding of how to manage money using examples that are familiar. There’s far more chance they’re going to grasp this than abstract explanations.”
Working our their own budget
Practical experience helps to drive the lessons home. When they earn pocket money for household chores, help them work out a similar budget.
First, they’ll need to pay the bills, perhaps by contributing to a pet’s upkeep or paying for airtime. Take them shopping when you’re buying groceries. Inevitably they’ll want something that’s not on your list and that might be their grocery spend. Remind them not to spend all their money because they still need to save some. Then, if there’s any left over they can have some fun, go to a movie or treat themselves.
“This first-hand experience is invaluable in teaching them how to practically apply what you’ve explained. It’s also a good idea to let younger children handle cash, under your supervision. Physically handing over hard-earned pocket money and counting the change will make them more confident about handling money and think a little harder about their purchasing decisions.
What about debit cards?
“Of course, it’s sensible and safer to get older children, who’ll be handling larger amounts, debit cards. Hopefully by then the concept of budgeting and thinking about how they’re spending their money will be ingrained and they’ll be less likely to tap-and-go on a whim. It’ll also teach them how to manage a bank account.”
Some banks, such as FNB, offer no-fee transactional banking accounts for children.
As a parent, teaching children about money isn’t something that you ever stop doing. As they grow up their earning potential grows. They may graduate from doing household chores to getting a casual job. Typically, their expenses also increase. They may want to buy sporting equipment, a scooter or motorbike to get around or even save towards a car.
Loans from the Bank of Mom & Dad
At some point they’ll probably ask to borrow money. When they do, set a goal in terms of what they need to earn before you’ll match them or lend them the remainder. Work out a reasonable period for the loan and a repayment schedule and charge them moderate interest. Explain there will be penalties if they miss payments and that you’ll also be less likely to lend them money in future. While they may not immediately appreciate it, you’re teaching them the benefits of paying what they owe on time as well as how interest works.
As they get older you can use a similar approach to teach them about the difference between good credit, such as loans to fund tertiary studies or start a business and borrowing money to fund an unaffordable lifestyle.
Perhaps the most important lesson of all is to remember that as a parent you’re a role model.
“If you’ve heard your child use a grown-up word or expression they didn’t learn in school, you’ll know they soak up everything around them. The same applies to how they learn about money. Remember that and the influence you have not just in terms of what you teach them but your own financial behaviour,” says Marlies.
Read more about raising financially responsible children: Teaching Children to Handle Money Wisely