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Age-appropriate money tips for children

by | Apr 20, 2021 | Personal Finance

It is sometimes incredibly difficult for adults to talk to children about money, since many adults don’t understand much around the topic themselves. It is because of this lack of financial education that young adults find themselves spending their entire salaries on debt installments, without making provision for their future (in terms of pension contributions, savings and investment). Much less for the necessities they might need today. Financial literacy for children is vitally important. Consider these age-appropriate money tips for children.

Shafeeqah Isaacs, head of financial education at financial services provider, DirectAxis, canvassed some of her colleagues with children of different ages about some age-appropriate money tips for children to become financially responsible adults. This is what they came up with.

Age 3 – 5: You can’t always get what you want, right now

We live in an era of instant gratification, from takeaway foods to online shopping. While your three-year old isn’t likely to be ordering Uber Eats during naptime, teaching children early that some things are worth waiting for may prevent them racking up credit-card debt on trendy clothes or the latest tech later in life.

Set attainable goals. For example, if your child wants a particular toy explain they’ll have to save for it. Have a savings jar or piggy bank into which you can put birthday money or small rewards for helping out, good behaviour or achievements.

Try to set them up for success by making sure the goal is achievable and they don’t have wait for months and lose sight of what they’re saving for.

Each time you child adds money to the saving jar, help him or her count it and work out how much more is needed to reach the goal.

Age 6 – 10: You’re responsible for the financial choices you make

You can teach your children the basics of financial decision-making by explaining financial priorities. For example, you can tell them how when you get paid, you first need to pay bills such as the home loan or rent. Then you need to buy groceries. If you do this carefully and don’t spend money on things that are too expensive or which you don’t really need, you’ll have some left over. Some of this you can save and some might be used to do something fun together.

Practical experience is the best way of driving these lessons home. When they earn pocket money for doing household chores, help them work out a budget.

First, they’ll need to pay bill, such as contributing to a pet’s upkeep. Take them along when you buy the groceries. If they want something special get them to contribute to that as part of their grocery spend. Remind them not to spend all their money as they’ll need to save some. Hopefully, if they’ve not spent too much they’ll have a bit left over to treat themselves.

Ages 11 – 13: the sooner you start saving the sooner you’ll reach your goals

At this stage you can introduce the idea of saving for long-term goals. Perhaps set a goal for something more expensive that he or she really wants.

Often at this stage children are reluctant to save because they want to buy things such as snacks at school or more airtime. By setting a bigger goal you can teach them that the opportunity cost – what they need to give up – will enable them to save more and reach their goal faster.

Of course, when saving larger amounts of money, it’s sensible and safer to replace the piggy bank or savings jar with a bank account. Some banks, such as FNB, offer no-fee transactional accounts for children. This will also teach them how to manage a bank account.

Ages 14 – 18: understand how to borrow sensibly

As children grow up their earning potential increases. They may graduate from doing household chores to getting a casual job. Typically, their expenses also increase. They may want to buy a scooter or motorbike to get around or even save towards a car.

At some point they’ll probably ask to borrow money. When they do, set a goal in terms of what they’ll need to earn before you’ll match them or lend them the remainder.

Work out a reasonable period for the loan and a repayment schedule. And charge them moderate interest. Explain they’ll be penalties if they miss payments and that you’ll also be less likely to lend them money in future. While they may not immediately appreciate it, you’re teaching them the benefits of paying what they owe and also how to build a good credit record.

As they get older you can use a similar approach to teach them the difference between good and bad credit. Such as loans to fund tertiary studies or start a business as opposed to borrowing money to fund an unaffordable lifestyle.

As a parent, teaching children about money isn’t something you’ll ever stop doing. Perhaps the most important lesson of all is to remember that you are a role model.

National Debt Advisors is South Africa’s leading debt counselling company. We deal with debt, and its impact on families everyday. If you are struggling to pay your debt and have enough money left for necessities – contact us today.

Source: Direct Axis / National Debt Advisors

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