Teaching Your Children About Finances
AFTER the positive response to the article last year about teaching children how to manage money, I thought a follow-up article offering a holistic approach would be in order.
I have no doubt being a parent is challenging. There are many lessons we need to teach children that will be the building blocks of a solid foundation for later life. I believe teaching children about money and personal finance is one of the most important tools we can provide them with for their future tranquility, stability and independence. The younger generation has been exposed to consumerism and capitalism almost since birth, and children as young as three know about money’s purchasing power. Understanding and dealing with finances at an early age will save them frustration and financial problems. There are a few key issues to be included in every child’s financial education. They need to know that saving money is the first rule of financial success. It is an excellent practice to teach children that the first thing to do after one gets a sum of money is to invest a portion in themselves. Before spending any of the money, they need to set some aside for a rainy day. All children should have savings accounts by the time they are old enough to grasp this concept. One must always know what one’s financial limitations are, and create a budget accordingly. Never use neighbours or friends as measuring poles because appearances can be misleading — for all we know, our apparently well-off neighbour could be swimming in debt because of his over-inflated spending practices. Our children should know that what debt does is give another person (or institution) control over their life, or at least their financial life, and this needs to be avoided. It is quite beneficial to introduce children to the family budget and tell them where our money comes from and where it goes; sitting down with older children and reviewing this budget will help them get a better grasp on the idea of a budget and financial planning. We need to teach them to create their own budgets and spending plans in order to encourage proper financial planning practices that will accompany them once they become financially independent. The next important lesson is to plan for the future. It is never too early to begin to save towards retirement and other big financial milestones in life. While a savings account is a great tool for a rainy day, larger financial milestones require more powerful tools. Parents need to teach children when they are young to take responsibility for establishing efficient investment and savings plans for their future. Once they are older, we need to share with them the plans and how they are structured. Eventually, they will take over their own investment planning and hopefully the example set will carry forward. Talking to children about money and finances may seem difficult, yet proper foundations and practices will help them become money-conscious adults and set them on the road to a firm financial future. Brian Hirsch / www.businessday.co.za / 15.05.2006
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