how to teach your children the value of money
The celebrated personal finance book Rich Dad, Poor Dad, which reframed the notion of wealth creation and money management from two different perspectives, marks its 22nd anniversary in 2019. The lessons are enduring and worth passing on, especially for parents looking to make sure your children grow into money savvy adults. But where and how do you start?
Marius Pretorius, Proposition Head of Marketing for Retail Savings and Income at Old Mutual, notes that lessons from Rich Dad, Poor Dad can offer a good basis for educating your child about money. “Learning to make your money work for you, emphasizing the importance of financial literacy and continual learning are timeless financial lessons that we should pass on to our children, and it doesn’t have to be boring or complex. Gamification, for example, can help children stay committed to savings goals in a fun way, while also learning valuable money lessons about interest and making their money work for them,” says Pretorius.
When it comes to pocket money, it’s important to structure it in such a way that clearly demonstrates the value of money as well as its capacity to grow over time.
“A weekly allowance can be a great tool for teaching the basics of responsible money management. For many kids, however, the joy of getting money is in spending it, which can lead to unhealthy attitudes. The key is therefore to show them the benefits and delights of delayed gratification from the moment they understand spending,” Pretorius explains.
This can be done in several ways, depending on the age of the children. “With very young children the easiest way is to help them set financial goals like buying a favourite toy, or turning a dream experience or outing into a reality. Explain that to reach this goal, they need to collect enough money from the pocket money they receive. Use jars so they can literally watch their money grow.”
As children get older, parents can begin to introduce the concept of earning interest on savings. “You can do this by offering them, for example, R1 for every R20 saved, R5 for every R50 and R20 for every R100 saved. Without having to explain the notion of interest, let alone compound interest, this method clearly illustrates the idea that ‘the longer you save, the more your money will grow’ and will encourage your kids to get into the habit of forgoing instant gratification for a delayed, but better, reward.”
Once your child has fully grasped the concept of interest, Pretorius says you can consider opening up an interest-bearing bank account on your child’s behalf, and include them in the process. “It is important to teach your children the formalities and practicalities of finance. Each month, go through the bank statement together and point out any interest earned, as well as fees charged. Teaching children to read a bank statement is a simple skill that even financially savvy parents often overlook.”
While these exercises will definitely support the financial development of your child and encourage healthy habits, Pretorius reminds parents that their own actions will ultimately speak louder than any lesson could.
“It is vital to remember that, as a parent, your attitude and behaviour towards your finances will be one of the biggest influences on your children's relationship with money. So be sure that the example you set is a positive and responsible one. By involving your children in saving for a holiday or being transparent about your efforts to save for education, you are setting the foundation for a financially secure future, for both your family and the future family of your children.”
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