Nobody wants to hear their children say, “When I grow up, I want to be in debt, just like you”. For some parents, speaking about money to their children is left for when they are much older, if at all. The result? When they grow up, they won’t be equipped to manage their own finances and avoid the inevitable “debt trap”. There is good news! It’s not too late to educate your children no matter how old they are. Here are a few fun ways to educate your children.
1. Have a conversation with your children
If you reflect on the financial discussions you have with your children, you may find they consist of repetitive quotes and saying that were passed down from your own parents; “Switch off the lights, money doesn’t grow on trees!” or “How could you lose your shoes? Do you know how much they cost me?” Perhaps you should consider having a real conversation with them. In fact, stop telling them and start showing them! Begin by opening up to them about your own financial position. Sheltering them from reality will not help them. Involving them in your finances creates room for engagement and they can begin to understand and appreciate the value of money and the pitfalls of debt.
2. Take your children shopping
Most parents dread taking their children to the store. Try turning what is ordinarily a challenging exercise into an educational one. Start by drawing up a grocery list and a shopping budget and ask them to help you stick to the budget. Teach them how to look for best prices on shelves and give them a calculator to keep track of the total cost before you get to the till. Reward them with a treat if their total is the same or close to the amount that gets rung up. This is a lifelong skill that your children will enjoy and thank you for in the future.
If you can afford it, give your children a monthly allowance. This will give them decision making power over their own money. They will quickly realise what things cost and will learn how to spend their money wisely. Ensure that you are firm about how much you will give them. Monitor their spending habits and advise them on how best to use their allowance.
4. Open a Savings Account
Children are very spontaneous and when they see something they like, they want it NOW! Try your best not to give into them. This is a unique opportunity to teach them the most valuable lesson of all… if you don’t need it, then rather save towards getting it. You could incentivise them with their savings goal by matching every rand that they save with a rand of your own.
You will need to open a savings account for your children to get them started. Show them how to shop around for an account, explain what banking fees and interest rates are and how it impacts their finances. Encourage them to watch how their savings grow and encourage them to reach their goal. Understanding the need to save for something they want instead of just borrowing will save them from a debt trap in their adult lives.
For most of the school holidays children lounge around watching television or playing computer games. Turn their school holidays into a business opportunity for them. Challenge them to come up with a business venture to run during the holidays. This could be washing cars, walking dogs for the neighbours, selling home-made goodies or even spending some time working at the local grocery store. Encourage them to bank the money they earn into their savings account.
6. Understanding Credit
Most adults only encounter credit when they leave school or when they started their first jobs. Applying for that first credit card or clothing account is exciting. Unfortunately, they get so caught up in the moment that they neglect to fully understand what they are committing to or how interest and fees are charged on these accounts.
If you don’t want your children to fall into the trap of living on credit, you need to teach them how to avoid it, or if they can’t avoid it, then how to manage it. Explain the difference between good and bad credit and how interest works. Let them borrow R10 from you and make them pay back R20. Chances are they will never do it again!
*DebtBusters is a South African debt management company