Browsing through financial news and websites is a rather doom and gloom experience with warnings on how few of us are going to be able to retire comfortably, that the savings rate is at negative 0.5% and the ever scary fact that 71.9% of every household’s income currently goes to paying off debt.
No parent wishes for their children to live a life consumed by debt; however, many feel guilty and unsure of how they are going to help their children avoid this. It is especially hard for parents who are still struggling to figure out the whole saving-money-thing themselves.
With that being said, there has never been a better time than now to provide your children with the skills they need to be financially independent adults. The power to improve the low financial literacy levels among children and the low savings rates within our greater population lies with all parents.
“To help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught the essentials about money,” says Beth Kobliner, author of the New York Times bestseller ‘Get a Financial Life’. Kobliner says children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge revealed that children’s money habits are formed by age 7.
Here are some basic tips you could use to teach your children the importance and value of saving.
- Talk about Money, it should not be a taboo subject in the household. Involving your children in making financial decisions relevant to their ages removes the mystery and empowers them to make smart choices. Teaching them why and how to save is the most important lesson but it should also be fun and incorporate achievable goals.
- Explain the difference to them between a ‘want’ and a ‘need’. The Grade 4 curriculum in SA teaches children to be able to differentiate between the two. Depending on their age, use relevant examples to explain how ‘wants’ should take a back seat to ‘needs’ in terms of spending. Saving money is a habit that can take time to build, and even some adults have yet to master it. The ability to delay gratification can also predict how successful one will be as an adult.
- Help them set an achievable goal and let them earn their own money. Help them decide on something that they would like to save up for, give them an opportunity to earn money through chores or if they are old enough through part time work and then write down how long it should take them to reach that goal.
- Help them open up a savings account or give them a ‘piggy’ bank if they are too young. This will help them track their savings and see how close or far they are to achieving their goal. It will show them how their goal gets farther away if they spend their money. You can reinforce the importance of deciding whether to spend or save. For your older children you can introduce the concept and impact of interest on their savings and how their money can ‘work’ for them. The sooner they save, the faster their money can grow from compound interest.
- Encourage and incentivize them. One of the things my parents did that worked really well was to ‘match’ my savings at the end of every month. After all, who does not like free money and by keeping the time period short your child sees it as being achievable.
- Make it fun and review their progress regularly. “There’s an App for that” – As we don’t often take our children into physical banks and most transactions of the future will occur in the online space, try out some of the budgeting and saving apps, such as Standard Bank’s Kids Banking app which uses the Big 5 animal friends to teach young children about managing their money in a fun and creative way.
- Find innovative ways of making saving a visual and tangible event. Many parents have successfully implemented the 1-1-1 ratio-based saving rule. How this works is they encourage their children to put any money they receive (gifts or earned) into three equal jars: Saving, Spending and Sharing. As an example, if they receive R90 they put R30 into their saving jar, R30 into their spending jar for when they want to buy something and R30 into their sharing jar which they can then donate to a worthy cause.
If you are not sure where to start, the web is filled with fun and creative ideas on how to get started saving with your kids.
“Making saving a regular part of your child’s routine can lay the foundation for a bright financial future. It is up to us to raise a generation of mindful consumers, investors, savers, and givers.”
If you require professional financial advice contact one of our qualified independent Financial Advisors.