We use our money almost every day. But most of us don’t know how to successfully manage our money. It’s surprising that schools don’t teach personal finance skills at all. So it’s up to us, as parents, to teach our children the money skills they’ll need later in life. How do you teach your kids money skills?
Being financial literate is key in understanding your financial behaviour, preventing financial ruin, maintaining profitability, and ensuring financial wealth.
Without the right financial education, you’ll struggle to maintain a healthy financial position. Understanding the basic principles of personal finance will allow your children to be more responsible with their money.
According to a Sanlam study, South African consumers are struggling with high levels of debt and lack the knowledge to help them structure their debt better. Consumers face economic and social pressures to increase their living costs, instead of maintaining an affordable lifestyle.
Due to the constant increase in living expenses, South Africans have a low savings rate and turn to credit as a means of survival.
If we knew how to manage our money better we would not be in tight financial situations.
It is up to us as parents to teach our kids the important financial lessons we never got from our parents and teachers.
Here are 6 money lessons you can teach your kids of any age.
1. Spending and saving habits
Beth Kobliner, the author of New York Times bestseller Get a Financial Life, says that children from the age of 3 years old can grasp basic financial concepts. Children are able to understand concepts like spending and saving from a very young age.
The University of Cambridge found that money habits are formed by the age of 7 years old.
If we’re able to grasp financial concepts from a very young age, it’s up to us as parents to teach these skills to our children.
The sooner our kids understand the concept of money and how to use it successfully, the better off they’ll be in the future.
You can use the Jar technique.
Use 3 jars labelled spending, saving, and sharing. Every time your kids receive money, help them divide their money between these jars.
Spending jar: This jar is used to pay for any small purchases they may want.
Sharing jar: This jar is to teach your children the importance of donating money and helping those in need. This money can help a friend in need or a charity of their choice. It can also be used to buy Christmas and Birthday presents.
Saving jar: The savings jar is for more expensive expenses.
The savings jar can also be used to teach your kids the importance of goal setting. If your child has an expensive goal in mind, come up with a program that will help them reach that goal.
It’s up to you as a parent to set your children up for success. If their goal is too ambitious, help them realise a more realistic goal.
2. Sometimes it’s better to wait
In the age of instant gratification asking someone to wait is almost impossible. We constantly want things right now.
Teaching our children to wait for the delayed payoff or to trade their current happiness for future benefits is not an easy task.
This lesson teaches your kids to make the right spending decisions, especially when it comes to impulse purchases.
One way that you can teach your kids the ability to wait, is by teaching them the 48-hour rule.
Let’s say you’re in a store with your kids and they want something specific, like a PlayStation game for example. Instead of buying that game for them, ask them to wait 48 hours. If they still want the game after 48 hours, they most likely really want the game and it won’t be wasted money. Plus they will probably appreciate it more 😉.
Most of the time they’ll forget about the game and move on with their life. This will indicate that they had an impulsive buying behaviour at the time and didn’t actually need that product.
Creating a 48-hour waiting period allows your child to really think about whether they want the product or not. This will eventually limit impulsive purchases and allow them to think about what they’re buying.
This method can be applied to any age group, as adults, we tend to make a lot of impulse buying decisions. So, apply this method to your own spending habits.
3. You always have a choice
Once your kids understand the concept of spending, savings and sharing jars, you can start including advanced money habits.
It’s important that your kids understand that money is limited, especially during the downturns like we’re experiencing in 2020.
Teach your children that they always have a choice when making a purchase. The money they have is limited, so they’ll have to make smart buying decisions. Because once that money is spent, they won’t have more to spend later on.
To teach your kids about choices, you can include them into your own purchasing decisions.
When going to the grocery store, you can show them that buying generic brands is cheaper and they taste the same as the high-end brands. You’re showing them that they can save money because they had a choice and that you chose the cheaper option.
You can also teach them about shopping deals. Show them which are good deals, and which aren’t.
Another way of teaching your kids is by giving them each R10 when you’re doing grocery shopping and ask them to get some goods off the shopping list, like fruit for example.
Create your own criteria that would award them later on. For example:
- Do these items fit in the budget?
- Are these items you need?
- Are these items affordable or the cheapest available?
Once they bring back the goods, evaluate what they got. If your kids bring back items that meet all the purchasing criteria, reward them with the R10. If they don’t meet the criteria show them what they could have gotten instead.
By doing this you’re letting your kids help you shop and you’re teaching them at the same time.
4. A lesson about compounding interest
Once your kids reach their teens you can get into more complex money lessons. Teach your kids about short- and long-term savings goals and how they can reach those goals.
Show your children how compounding interest can benefit their financial situation.
Explain the concept of compounding interest as simple and realistic as possible.
For example, show your kids how much money they could have if they saved R500 every year for the next 30 years.
Show them the difference between saving with compounding interest and without.
If they were saving without compounding interest they would only have R15,000 saved up. But if they earned compounding interest (at 6%) they would have about R50,000 by the time they’re 40 years old.
Show them a few different scenarios so that they can see how compounding interest works.
Ask your kids what their financial goals are and help them calculate these goals and guide them along the way.
5. Understanding how debt works
A perfect time to teach your kids about debt is when they’re old enough for university or college.
Show your children what it costs to study and how much you can afford. Explain to them that you may need to take out a loan to help cover these costs.
It’s important that you have an open and honest discussion with your children about what you can afford, this will help your kids be realistic about their futures and help them set the right goals.
Task your kids to help you find financial aid programmes by seeking out potential bursaries and grants.
You can help them choose their career path by showing them their expected salary once they’ve graduated. Help them calculate what they’ll be paying back towards student loans once they’re employed.
If you need help paying off some of the student loans, ask your kids to do some part-time work while they study. This will help them learn to work hard and smart while they study and teach them money skills at the same time.
6. The magic plastic card
The average South African owes R16,481 in credit card debt. Teaching your kids how credit cards work is valuable knowledge these days.
Too many people abuse credit cards or don’t know how they really work. Credit cards can be very dangerous if you don’t know what you’re doing.
Teach your children the dangers and the benefits of a credit card while they’re growing up.
Show them that credit cards are a tool that can help them when they’re in a tight financial situation. Credit cards should not be used to make purchases with money they don’t have.
These are only a few valuable money lessons you can teach your kids. Find other money lessons to teach your kids and help them build a strong financial position.
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