Preparing your children to create a successful financial future is one of the most valuable principles you could teach them from a young age. In the spirit of Youth Month, we discuss some key personal finance principles to help educate your children.
There are many examples of children from wealthy families that are not financially successful when they become older, despite having unlimited opportunities and funds available to them. This emphasises the point that it is not about how much you provide your children with financially, but that you teach them money management skills to implement in their own adult lives.
If you invest time into teaching your children basic finance principles, you are setting them up for life financially, since they will be able to manage their finances responsibly, no matter how much or how little they earn one day.
Consider these steps to teach your children about finances:
- Set an example
As with anything else, children learn from seeing rather than being told, despite their age. It is therefore important to set a good example with your saving and spending habits. These habits could include resisting impulse buys and paying bills on time, to help your children develop good spending and saving habits.
Explain to your children where money comes from when they are old enough to understand that “money does not grow on trees”. This leads into why it is important to budget, and when children are old enough to start asking for an allowance, you can teach them how to set up a budget. For example, for you and your child to agree on a sufficient monthly allowance, ask them how much they need on a monthly basis and to illustrate how they calculated the specific figure by creating budget categories for social gatherings with friends, buying magazines, cellphone data etc.
- The Saving Principle
In addition to being an essential money habit, saving also teaches children discipline and delayed gratification. Incorporate goal-setting and planning when teaching your children how to save, as well as the importance of security and financial independence. You can also have your child save 10% of their allowance as a prerequisite for receiving an allowance in the first place. Depending on your child’s age, start with short-term saving goals applicable to them, such as saving for a toy if they are around 5 years old, or saving for spending money on a family holiday if they are in high school.
- The Spending Principle
Saving goes hand in hand with spending, since your saving goals are aimed at the things you plan to spend on. It is therefore also important to teach children that you should not spend money you do not have, to discourage purchasing things on credit, and that if you want something, you should save up for it instead. Also explain needs versus wants to your children when they are old enough, so that they understand they will have to spend money on things they do not necessarily want to when earning a salary, such as medical aid and insurance.
- The Giving Principle
Along with saving and spending, it is essential to teach children to be content with and appreciate what they have rather than trying to “keep up with the Joneses”. Illustrate the benefits of giving back, such as donating to a charity as a family, to instil this value in your children so they make it a habit from an early age.
Learning money management skills is a lifelong process, and one can never know too much about personal finance. Therefore, educating children from a young age will set them up for their financial future to ensure they start making wise money decisions sooner rather than later.