Parents shape their children’s attitudes towards money – purposefully or not. And kids tend to absorb much more, and much sooner than we realise – with certain studies saying that money habits are formed by the age of seven.
Youth Day – celebrated on 16 June – is a good reminder of the importance of creating set patterns on how to deal with money within families and households. Although this has proven to be difficult given the economic volatility of the past few months.
This is according to Charnel Ernstzen, Managing Director of National Debt Advisors (NDA), who points to new data from credit bureau Experian which shows how South Africa’s debt behaviour worsened with the lifting of lockdown measures. “The research shows that the increased economic activity in the latter parts of the year, after strict lockdown measures were relaxed, has seen South Africa’s Consumer Default Index deteriorating from December 2020, to March 2021,” says Ernstzen
As parents, how do we explain these financial trends, as well as the impacts on our households, to our children?
“We live in an era of instant gratification where there are few limits to what we can buy. From online shopping to take-away food, the world is at our fingertips.
“As parents, we have the responsibility to teach our children about saving, debt and money on the whole, so that the next generation is better equipped to interact with money”.
Here are Ernstzen’s top tips to create money savvy habits with your children:
Be open and honest
Children are very much aware of what is happening around them. Rather include them in open, frank discussions about household finances.
They don’t need to know exactly how much you earn, but they should be aware of the overall financial situation of the household, so that they know where the boundaries are.
For example, explaining that there is no money for a particular big-ticket item for the next six months, they will think twice before asking ever month. This can take a lot of emotional pressure off the family.
Don’t underestimate your children’s intelligence
Children are clever and learn from what they see. Take them with you when going to banks and ATM’s. Most banks have accounts for children, so it’s easy to open an account for them and let them start interacting and being responsible for their own money.
Teach them the difference between wants and needs
Children sometimes have a sense of entitlement and are oblivious to what is a necessity versus a luxury. It is our job as parents to educate them on this. Doing so will help you avoid having to go into debt to appease a child who makes demands for unnecessary things.
Teach them that cash is king
Some children think that there is infinite financial resources at their disposal – help them understand the concept and effects of debt and that not all debt is bad, but it can very quickly spiral out of control. If you are already in debt, discuss with them the cost-cutting measures that you’re taking as a family.
Encourage them to avoid becoming over-indebted by saving and paying cash for goods wherever possible. At NDA, we have found that many vulnerable, impressionable, young people are bombarded with credit offers after they enter the workforce. We regularly see school leavers in their first job earning R5000 a month, and shortly finding themselves with debt repayments of R4500 per month.
Teach teenagers about long term saving concepts
Once children leave the primary school phase, you can actively push the idea of saving for long-term goals. While teenagers are usually very reluctant to think beyond the immediate, this is the perfect time to teach them about compound interest, savings and investments.
Set a big savings goal (a deposit for a vehicle perhaps) and offer to match what they save – and if they borrow money from you, give them a time period in which to repay you, and consequences for missed or late payments.
“Living in an over-indebted household not only causes financial distress, it also causes emotional distress. At NDA, we see many relationships, marriages and families torn apart because many South Africans haven’t learnt to be open about money – and end up looking for solutions when it is too late”, says Ernstzen.
“Now, more than ever we need to open the lines of communication with our children about money. The more informed they are, the more financially free they will be in the future,” concludes Ernstzen.