Nine tips for helping your child develop a healthy relationship with money
It is never to early to teach your children to be financially savvy
By Elian Wiener
There is no doubt that one of our most important responsibilities as parents is to ensure our children have a healthy relationship with money. Why then, are most of us doing such a bad job of this and what can we do to turn it around?
I spoke to a couple of top financial planning experts to get their advice on how we can help our children develop a better relationship with money.
1.Talk about money as a family
Andrew Bradley, CEO of Fiscal Private Client Services, says that families are happy to talk about politics, religion and sex, but money is often avoided. “Parents need to understand that whatever positive contribution they can make to their kids’ financial education and relationship with money has an exponential return. As the sandwich generation, we are currently being caught between providing for our parents and kids, which with our longer lifespan will put severe pressure on our generation, unless we can enhance our kids’ money relationship.
2. Determine your values as an individual and as a family
Bradley says that it is our job as parents to teach our children to understand that money is not the goal. “Rather, money should be seen as both a means to and effect of, using their skills and passion to enable them to live the lives they want to live without compromising on their values.”
He believes that once your whole family is on the same page when it comes to values and lifestyle, then you can agree on how money relates and aligns with this. “All our actions need to align what we stand for and how this relates to our money behaviour. For example, if everyone believes family time is important, it could affect your decision to constantly work late nights and weekends in order to make more money. You can also help kids understand trade-offs by getting them involved with decisions like whether to go out to a restaurant once a week or once a month or where to go on holiday.”
3. Teach them to stick to a budget
“My mom used to budget and stick to her budget with military discipline,” says Craig Gradidge, Co-founder of Gradidge-Mahura Investments.
“She earned very little but managed to make it stretch and do what it needed to do. My old man passed away when I was very young, but even though he earned very little he owned a car, a kombi and a house. We lost that when he died, but his ability to stretch a Rand was well known in the broader family.”
Gradidge advises parents to teach children how to budget, and don’t bail them out when they spend too much or too quickly. “You could start by giving your children R20 or R50 when they walk into a mall and give them the choice to do whatever they want with that amount. They can spend it on the first thing they see or save that money and spend in a subsequent trip. If they save it, they get an extra amount next time, which also helps to teach them about the power of compounding and capital growth lessons.”
4. Help them understand the difference between needs and wants
“My parents provided for everything I needed, but very little of what I thought I wanted,” says Bradley. “That taught me the difference between needs and wants. I felt as though I never had what I wanted and whenever I did get that, I really appreciated it. I got weekly pocket money which was not very much, but enough to teach me that I had choices and the consequences of how I exercised them.
“This had a big impact on how I determined priorities. When I was saving up for something, my father would sometimes also assist me to get to my objective a bit quicker with a loan, which I had to repay from my pocket money over time. From that, I learned about the benefits of delayed gratification. To get more of what I wanted, I got a number of part-time jobs while at school, like delivering newspapers so I could get a few more wants. I really made sure I got value for money with my hard earned money.”
5. Set the example
According to financial advisor Peter Calitz, of Peter Calitz Financial Services, when it comes to teaching your kids about money, you need to set the example. “Be prudent with the way you spend, because children watch what you do. Let them see how hard you work so that they will develop the same work ethic.
“My wife and I have raised a fiercely independent 24-year-old daughter who saves every month and has a high work ethic. When I ask her why she works so hard, she tells me it is because she watched her mom and I as she was growing up. I can’t stress the importance of love and boundaries enough, as these two components give children the security within which to learn the fundamentals of generating wealth.”
6. Teach them the importance of financial security
“In my early adult life, my parents ended up losing most of what they had due to a bad business decision in retirement,” says Bradley. “This made me very aware of financial security, to the extent that I probably became slightly obsessed with it. With the help of my wife we were able to unpack that and work to a compromise that worked for both of us based on what we wanted to achieve as a family.”
7. Help them become financially literate.
Gradidge believes it is crucial to teach children financial concepts such as compound interest, the time value of money, inflation and tax.
He says that too many adults have themselves not gotten to grips with money and are not in a position to pass any advice on to their kids around the issue. “I think you can see the results of this in the debt statistics that we have today.”
There are a number of free financial literacy sites and courses you can use to improve your knowledge.
These are some of the best of them:
8. Make them invest from an early age
Calitz says mutual funds are a great way to teach them how to invest at an early age. “Start their own fund and teach them to save 10% of their pocket money in it.”
Gradidge suggests opening a tax free savings account in their names. “Nothing gets a person’s attention more than seeing their name on something. I give my kids their statements every few months.”
9. Teach them to have a healthy disrespect for banks
Gradidge says it is important to teach children to see banks as a source of capital and little else. “Banks have too much power over consumers, yet banking is a commodity. Banks also have far bigger budgets to market their credit facilities, rather than their investment products.