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Teaching your children good money skills and values can help to create a lasting financial legacy for your children and theirs. Here’s what you can do to raise rich kids!
We asked Dr Frank Magwegwe, founder of Thrive Wellness, certified financial planner and lecturer at the Gordon Institute of Business Science, and human potential and parenting expert Nikki Bush for their tips on how to help you raise children who are financially savvy.
1. Talk to your kids about money
“Financial education is just as important as sex education,” says Frank. “The right money values and skills come from a family developing a habit of talking openly about money.”
In many families, talking about money is taboo. But your children won’t simply pick up good money values and management skills as they grow – you have to intentionally teach them the skills they need. So, ensure you discuss money openly as a family, that you explain big financial decisions in an age-appropriate way, and ensure they gain an understanding of investment, saving and the dangers of living in debt. If you have any generational wealth that you would like to pass on to your children, talk to them about your plans for their inheritance, when they will receive it and how to use it wisely.
2. Teach your kids money skills and values – from a young age
“Start early,” says Frank, pointing out that children’s money habits and attitudes are set by age seven.
Three years: “Give your kids money to spend at the shops on an item they choose, such as a sweetie,” says human potential and parenting expert Nikki Bush. She says learning needs to be concrete up to around age nine, which means your kids should physically have money so they can see how it can be exchanged for goods.
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Four years: Give your kids pocket money, “weekly and in cash until around ages 10 to 12,” says Nikki. “Consistency is important, so start small and increase it gradually over time.”
Seven years: Open a bank account and make it an occasion. Nikki took a photo of her son at the bank when he opened his first account. “I made a big fuss,” she says, “because it marks a place in the journey to financial independence.”
Eight years: “Teach your children how to save a portion of their pocket money towards a goal – something they really want,” says Nikki. This teaches the lesson of delayed gratification, where we wait for something (no credit!) and save towards it.
Teaching children good money skills and values will ensure that any generational wealth you pass on to them, be it a home or savings and investments, will be carefully spent and preserved for their children.
3. Teach your children about credit and debt
In addition to learning about saving and delayed gratification, using credit wisely is a must-learn money skill, as is using so-called good debt to grow your wealth. Teach your children the difference between debt that creates wealth (good debt) – such as a home loan – and debt that can destroy it (bad debt) such as buying goods you don’t need on credit.
Nikki suggests giving your child a small loan that they have to pay back so they can buy something they cannot afford to pay for in full, for example a sports equipment item such as a bicycle, expensive soccer boots, cricket bat or tennis racket.
“The important thing is that they uphold the commitment and pay back the loan on time,” she says.
4. Teach your children how to make money grow
Once your children have a reasonable level of mathematical skill, teach them about compound interest. This is when you earn interest on interest, which grows your money exponentially. For example, you invest R100 and earn R5 interest. Invest the R5 interest and you then earn interest on R105, which means you earn more interest. One way to see the benefits of compound interest is to open a bank savings account and monitor how much more interest is earned each year as the amount invested grows.
Top tip: Follow the link for a quick and easy comparison of children’s bank accounts.
Another way to grow your money is to start investing in an account where you can earn interest and dividends, and the capital amount invested can grow, such as a unit trust fund, or shares in an Easy Equities account.
5. Give your kids a good education
Education increases earning potential and employability. Investing in your children’s education ensures they learn the skills they need to succeed in their chosen career one day.
You can start saving for education when your children are born so you have funds in an investment account such as a unit trust. You, and family members who are able, can contribute regularly into this investment account.
Don’t forget to share with your children why education is so important, so they know how it can improve their lives, open up opportunities and help them achieve financial independence.
6. Be a role model
Children learn from example, so set a good example by managing your money well and ensuring they understand why you make certain financial decisions.
Teach them the fundamentals of what is involved in buying a family home, for example, and the importance of having savings and investments that you can pass onto your kids. Include them in the family budget. Ensure they understand that having life insurance is a responsible choice, because it means your family won’t suffer financially if something happens to you.
We asked Frank for three fundamental ways you can model good money habits to your kids:
- Spend less than you earn and avoid bad debt. Living within your means is a fundamental step towards a firm financial foundation.
- Invest in your own financial education to develop positive financial habits that will help you manage your money well. Start today by applying for the Truth About Money’s online financial education course. It is free of charge to successful applicants and teaches you how to manage your debt and save.
- Have protection in place for unforeseen life events so you don’t fall into debt or find yourself in financial difficulty if something happens. This includes emergency savings, life, disability and dread disease insurance, income protection, and car, home, and home contents insurance.
Start small but start today!
There is a lot you can do to raise rich kids – but you don’t have to do it all at once! Identify a few areas you want to work on to help your family and spend some time on them! As an added bonus, you may get some extra family time with your loved ones.