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Parents spend much time preparing their children, mentally, spiritually, physically and emotionally for the demands of adulthood. A study undertaken by the Financial Services Board (FSB) in 2011, however, found that young people are not adequately prepared to make sound financial decisions. This was shown in the low scores achieved by youth in the areas of financial control (42%), financial planning (40%) and product choice (40%). The empowerment of youth to be financially literate is central to breaking the cycle of over-indebtedness and poor money management. If youngsters are empowered to make smart financial decisions, we will be on our way to ensuring that the next generation enjoys financial freedom. As parents, there are many ways you can encourage your children to be financially savvy; particularly through conversations and practical examples.
Practical things parents can do to set good financial examples include;
Include children in the monthly budgeting. Many people find speaking about money to their children as taboo but by showing children that money is a limited resource which must be used wisely; children learn valuable money management skills.
Make children work for their pocket money. Life teaches us one very important thing- there is nothing for mahala! By insisting your child does simple chores around the home in order to earn their pocket money teaches them that if they want anything in life, they must be prepared to work for it.
Save 20% of their pocket money. Speak to your children about the importance of savings. By starting your children saving at an early age, it becomes part of their way of thinking. Children who come from families who encourage savings are less lightly to make bad financial decisions. Speak to a registered Financial Service Provider (FSP) for the best savings vehicle for your child. Don’t EVER raid your child’s savings. Savings are based on trust and the child needs to know that they can trust you with their money.
Set saving goals. Encourage your child to choose something they want and map out how long they will need to save. Show your child bank statements which indicate how their savings grow. This will encourage them to keep on saving.
Take youngsters to the bank and explain to them what services the bank renders. You then explain to your child the importance of banks in your day-to-day living.
Explain how credit works. Credit is a major part of adult life and the way should be used is a vital life skill. Explain to your children that debt can be good- such as for buying a car, house, financing studies or to provide capital for a new business venture. Provide them with examples of how you manage debt. Encourage them to know about the National Credit Regulator (NCR) and explain why they should only work with licenced credit providers (see www.ncr.org.za for more details)
The same study referred to in the introduction was done to benchmark financial literacy of South Africans. The overall score was 54% with the youth scoring only 44%. It is in our best interests to ensure South African youth of today are financially literate as this generation is the next generation to steer the South African economy (including managing our pension funds).
Written by Tammy Peyper
Manager: Consumer Education
Financial Services Board