The role of financial literacy in an economy should not be underestimated. 

As former associate professor, Mark Graham at the UCT Graduate School of Business points out, the benefits of financial literacy are manifold, “from helping households manage their budgets and savings to enabling entrepreneurs to get on with the business of value creation and economic growth”.  

Graham might have since retired, but his words still ring true. And where better to start than with the teenagers who will form the next generation of economically active adults?

Farzana Botha, segment solutions manager at Sanlam Savings, says unfortunately, some parents feel that money conversations are for adults only, leaving their children without a basic understanding of money management. 

“Habits are formed from as young as seven years old, so it’s critical to start instilling basic financial concepts, such as planning, goal-setting, needs versus wants, and appreciation of money and how to earn it,” she says. 

With this in mind, Sanlam launched the Savings Jar app last year as a way to gamify financial literacy for young children.

Botha notes that what you teach your children about money needs to be age appropriate and aimed at empowering them while building their confidence as well as a healthy relationship with money. 

Sanlam and other financial institutions offer tax-free savings accounts that parents can start contributing to, on behalf of their children. While the child’s tax allowance will be used on their behalf with this transaction, the head start on investing that money cannot be discounted. 

Duma Mxenge, business development manager at Satrix Investments, points out that if you contribute R250 a month towards a TFSA such as the Satrix Top 40 ETF for a your 10-year-old child, your total contributions would be R36,000 and the interest they earned would be just over R37,000, giving your child a financial investment worth R73,400 by the time they turn 21. 

Importantly, when it comes to earning tax, Mxenge says as a parent or legal guardian of a minor child, you could be required to include any income of the minor in your own tax return. 

“This applies if the source of income is either directly or indirectly received from the parent or legal guardian, such as pocket money,” he says. However, if your child receives income from their investment, they would personally be liable to pay tax on their income.

In that instance, the parent or guardian would be responsible for registering the minor for tax – if the income exceeds the tax-free threshold of R87,300 a year. 

You would also need to complete a tax return if your child earns interest above the annual exempt amount of R23,800. 

“When your child turns 18, the parent or guardian is no longer liable for the income and capital gains earned from investments made on their behalf, and the child will be required to complete their own tax return,” he says. 

The biggest stock exchange in Africa, the JSE, has been running an annual Investment Challenge for 49 years, encouraging youth to learn firsthand about how to invest. 

Ralph Speirs, CSI officer at the JSE says almost 190,000 learners have been through the programme over the last 20 years. 

“We have definitely seen an exponential increase in interest. In 2002 we had around 2,000 learners playing each year, and now we are averaging 18,000 entrants each year,” he says. 

Speirs says contrary to popular belief, you don’t need a lot of money to start investing in stock markets. 

“We are encouraging a different narrative and we do so by driving financial literacy within communities, starting with young people,” he says, adding that the JSE is happy to train teachers so that they can encourage learners to join the challenge and learn about investing from a young age. 

Botha provided the following tips to encourage children to save: 

– Teach them how to budget. For example, if they receive R100 allowance per week, according to the 50/20/30 rule, 50% of your income should go towards your needs, 30% to your wants and 20% towards your savings. Help them to understand this and allocate their money weekly. “If you notice that they are spending too much on their wants, or if they are dipping into their savings, give them the option of only getting R80, where you save the R20 on their behalf.” 

– Get them involved in the grocery shopping. This will help them understand the value of money at a far younger age. 

– Give them the opportunity to earn. There are non-negotiable chores, of course, but if they need money to buy a birthday gift for a friend and did not budget for it, give them extra chores to earn the money. It is also important to hold them accountable – meaning that they cannot receive the money if they have not completed the work. DM