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Structured Products

Structured products: build in downside protection Structured products are pre-packaged fixed-term investments that provide private investors with easy access to offshore equity and commodity markets, with a pre-defined risk and return profile over a pre-defined...

Teaching kids good money habits

Teaching kids good money habits

Learning is a lifelong process. It’s a journey. Teaching kids money skills should be intertwined in our everyday routines as it is not possible to do a short course on this one! “Education is more valuable than cash in the long-term.”

We need to set the foundation for our children to make wise decisions in the future. A quote from the book Rich Dad, Poor Dad summarises it like this: “Illiteracy, each in words and numbers, is the foundation of monetary struggle.”

A few personal favourites

One of the books I read early in life was Rich Dad, Poor Dad. The book highlighted that all of us were given a mind and time. It’s up to us to do what we please with both. With each rand (or cryptocurrency as the new generation would say) that enters into your hand, you, and only you, have the power to determine your destiny. Spend it foolishly, and you choose to be poor. Invest it in your mind and learn how to earn money and handle the money you earn, you will be choosing wealth as your goal and your future.

Some of my other favourite life lessons are:

  • Question everything. “Questions unlock and open doors that otherwise remain closed” – John C Maxwell.
  • If in doubt, don’t do it.
  • Be a student, not a critic.
  • Don’t take yourself so seriously.
  • Don’t think less of yourself, think of yourself less.

Forest Gump once said: “…life is like a box of chocolates, you just never know what you’re going to get.” That’s true and it also applies to investments. So, how do we prepare our kids to be smart investors and to make calculated decisions?

A parent’s guide to teaching your kids about money

What we are about to teach you is probably not entirely new to you. We highlight a few of the most important lessons you could teach your children about money according to their age group. There are also online resources to teach kids of various age groups about money, saving and investing. One such resource which we found particularly helpful can be viewed here.

Children aged 3-6 years

  • As soon as a child can count, introduce them to money and talk about it.
  • We live in a digital age, but when your child starts learning about money, give them a coin or note in hand so that they can conceptualise it. Help your child identify the value of the different coins and notes.
  • Introduce them to the concept of pocket money and give them control over it. Let them experiment.
  • Let them save it. Let them give it to someone else. Let them buy something they enjoy. Let them buy something that they might regret.
  • Plant the seed of setting goals and timelines by explaining to your child they may have to wait to buy something they want.

Children aged 7-10 years

  • Teach them to make informed choices about how and where they spend their money.
  • Shop around and compare prices before you buy.
  • Ensure that your child knows how to present enough money to cover purchases and count their change.
  • Explain how money is earned and accumulated, whether it be from a salary, owning your own business, earning rental income, prize money or inheritance.
  • Draw up a very basic budget to teach them concepts like income, expenses and profit/losses.
  • Open up a bank account so your child can earn interest while they invest.
  • Even if it’s only a small sum of money, teach them about giving to worthy causes. As we are blessed, so should we bless others.

Children aged 11-13 years

  • Teach your kids about compound interest. As Albert Einstein said, “compound interest is the eighth wonder of the world.”
  • Saving up for a wanted item is not the same as saving for the long term.
  • The sooner you start saving the faster your money starts growing.
  • Do not lend your child money to purchase an item. Delayed gratification and saving up to buy something of value teaches them tenacity and persistency. I have personally found that delaying a purchase often results in a reassessment of needs and wants, and then eventually leads to a change of mind.

Make it fun with short quizzes!

Ask your child about the difference between a debit and credit card and how it works. Tell them a credit card is a way to borrow money and teach them that, unless you pay it back every month, everything you buy with a credit card is far more expensive than it would be if you paid cash or with a debit card. A debit card is used to purchase items with money that you already have in the bank.

Encourage your children to always ask questions when they are not sure. In doing so you are creating an environment where they will always be transparent instead of feeling shame. Asking for help is part of the learning journey.

“The quality of our questions determines the quality of our decisions”.

Children aged 14-18 years

  • Teach them to manage their own money by giving them the responsibility to cover certain expenses from their pocket money like data, social activities, or fast food.
  • Using a credit card is like taking out a loan; if you do not pay your bill in full each month you will be charged interest and you owe more than you originally spent.
  • Teach them about different kinds of taxes. Your first salary may seem smaller than expected since taxes are deducted from your salary.
  • There are various ways of saving, and money in the bank is not a long-term investment strategy. Teach your kids about property, unit trusts, endowments, shares and even cryptocurrencies.
  • Re-enforce the concept of not spending money you don’t have – don’t buy on credit. This is probably the most important concept to teach.
  • Start talking about covering expenses post-high school and mutually decide as a family who will cover what.
  • Open a stockbroking account and let them learn with virtual money. Teach them concepts such as stop losses, forwards, exchange rates, etc.
  • Teach your kids about investments:
    • Always count, verify, then trust.
    • In every craft seek the expertise of experts.
    • Slow and steady wins the race.
    • Don’t listen to market commentators; listen to people with track records that prove they can beat the market.
    • Know that good plans sometimes also go wrong.
    • Invest for the long term, stay the path.

We all know the saying, “Money doesn’t grow on trees”, but instead of stopping the conversation there, use it as an opportunity to teach your kids about money so that you can enable them to be smart, to be streetwise, to be intentional and to be financially successful. The sooner you teach your children the basic principles about money, the better.

“Be happy when you work, thankful when you earn, cautious when you spend, shrewd when you save, and charitable when you give.” – Matshona Dhliwayo.

Children aged 18 years and older

  • Introduce your child to the concept of a financial advisor. Make an appointment for them to meet your financial advisor and to listen to how you discuss your financial matters.
  • It’s essential to save at least six months’ worth of living expenses in case of an emergency.
  • The sooner you start saving for your retirement, the faster your money starts compounding. Save at least 15% of your salary when you start earning.
  • Draft a will.
  • A car is not an investment, it is an expense.
  • Start saving for a deposit to purchase a speculative property.

You’ve probably heard of the marshmallow study that had kids sitting in a room with a marshmallow in front of them, and testing whether they could postpone eating it.

They were told they would get a second one if the marshmallow was still in front of them when the grown-up returned.

Follow-up studies showed that the kids who managed to distract themselves and control the impulse to eat the fluffy sweet were more successful later in life.

The conclusion was that postponing your needs and controlling your urges are important skills to master.

How do you teach that? Well, you are well underway in letting them manage their own money. They will learn to let some things go to get what they really want.

Like so many other aspects of parenthood, helping your children build strong, healthy money habits takes patience, time, and lots of repetition. We hope these guidelines will enable you and your kids to take flight on this journey of learning.

Structured Products

Structured Products

Structured products: build in downside protection Structured products are pre-packaged fixed-term investments that provide private investors with easy access to offshore equity and commodity markets, with a pre-defined risk and return profile over a pre-defined...