By Warren Ingram, CFP®
One of the most frequently asked questions we receive on the Honest Money podcast is about how to teach children about money. Financial education is desperately needed in a country where so many people were excluded from the formal financial system through Apartheid and, more recently, poverty. That means there is a generation of children growing up with parents who don’t have limited knowledge about personal finance.
Some of the benefits of teaching our children about money are:
Creates a foundation for financial freedom: Teaching children about money from a young age lays the groundwork for financial freedom in adulthood. By understanding concepts like budgeting, saving, investing, and avoiding debt, children can develop the skills necessary to make sound financial decisions.
Prevention of Financial Mistakes: By educating your children about money early on, you can help prevent common financial mistakes such as overspending, impulse buying, or accumulating debt. Teaching them the value of money and the importance of saving will set them on the path to financial success later in life.
How can you teach them:
Start Early: Introduce basic money concepts to children as early as possible. Use everyday situations like shopping trips or buying treats to teach them about the value of money, budgeting, and saving. For instance, involve your children in writing a shopping list for the things you need before shopping. Identify what the family needs and what the luxuries are. Explain to your children how much money is available for the shopping trip and that you will focus on the family’s needed items before considering buying luxuries. Once at the shops, you can get your children to keep a running total of how much you will spend. It might help you keep a tighter rein on your spending, and your children will undoubtedly start to learn the skills of prioritising and budgeting. This also embeds the concept of “needs” vs “wants”, where children learn to prioritise spending on the most important things first.
Teach them the value of money: Provide your children with pocket money linked to chores around the house. This will help them understand the value of money and teach them an important life lesson – that money does not grow on trees but is earned. It is especially important to link the ability to earn more through more effort. So, if your child wants an expensive gadget, you can help them work towards buying it by getting them to do something to earn more money. This could be in the form of more chores, or you could get them to think about starting a small business where they sell something to make extra money. This can be a great way to teach them how to sell, buy, manage stock, and identify what customers want.
Lead by Example: Children learn by observing their parents’ behaviour. If you demonstrate good financial habits such as budgeting, saving, and investing, they can emulate these behaviours in their own lives. It is essential to talk to them about money and expose them to financial decisions in the family. Some financially successful families include their children in business and financial discussions from a young age. If children grow up in this type of environment, they have a 10-to-15-year head start on how business and money works.
Gamify the process: We can learn a lot from social media companies that gamify our behaviour to keep us watching pointless videos when we should be working or sleeping. Using the same principles from these platforms to create better financial behaviour is possible. Consider Duolingo and how it helps people learn a new language. There are some international financial education apps that you can research to help you teach financial skills to your children. Unfortunately, they are not built for South Africans but they might be useful: TheGameOfLife, RoosterMoney, and Bankaroo. The important part of financial literacy is that it is not a once-off event. You should try to make it part of life for you and your children. As they get older, the lessons can be more complicated, and there will be a time when they can start to share knowledge with you. This is the beauty of education: It never stops rewarding you if you put in the effort.
Written by Warren Ingram
CFP®, Wealth Manager, public speaker, and author. Host of the Honest Money podcast. FPI South Africa Financial Planner of the Year 2011.
