Teaching kids about money

Start teaching early and keep going

Adult bank better, live better habits are set by the time children are 7 according to a 2013 study by the Money Advice Service. They recommend teaching them about money as soon as they can start counting. And according to a 2014 working paper on financial education in US high schools, students who learned money skills for a year or more made better bank better, live better decisions as adults.

Start with the basics

Children learn by imitation from an early age. They also learn by picking up patterns in their own daily experiences (called inductive learning), so involve them in age-appropriate money activities as often as you can. And because they learn from what they see you do, it’s important that you manage your money well. Getting the basics right will help your children build a strong financial base.

Those basics include:

• Budgeting
• Managing a budget shortfall
• Saving
• Planning for irregular expenses
• Building an emergency fund
• Doing more with credit
• Investing and planning for the future

Ways to teach them

Some of the ways to teach kids about money include:

• Being honest about your own money situation
• Using the example of window shopping to explain how money is limited and that they can’t have everything they see
• Discussing the differences between wants and needs. Food is a need. A new game is a want
• Getting them to record how much they earned and how they spent it
• Drawing up a contract every time they borrow money from you
• Charge interest or set up a grace period where they don’t pay any if they pay back the loan before its term
• Never loaning them more money than they can afford to pay back
• Chatting about how to save money to pay for something instead of borrowing, and the difference between saving for something specific (short-term) and regular saving for unexpected expenses 
• Exposing them to opportunities where they can donate money or time to a cause

Talk to them about credit

In December 2014, the National Credit Regulator reported that nearly half of all credit-active South Africans were struggling to meet credit payment commitments. It’s important to use credit for needs that add value, such as home improvements or education. Don’t use credit for luxuries or consumption spending (e.g. food, clothing, holidays).

When one of our clients spoke to her children about credit, she highlighted the following:

• Not all credit is bad
• A credit card can save or sink you, so use it wisely
• If you borrow, you must pay it back
• Make good money decisions from the get go
• Build good money habits from the start

Remember, while these things may seem quite obvious to adults, they aren’t for children.

Open a savings account for them

According to another 2014 research paper on global financial literacy, people underestimate the power of compound interest. Get your children to start saving early, or do it for them if they’re still too young, to take advantage of the compounding effect. For example, at Capitec Bank you can ​open an account for children under 16. You can also open a tax-free savings account to save for their education.

Tip: If they earn pocket money from you or get paid for a part-time job, teach them to save a portion of what they get and benefit by earning interest from the first R1.