Practical ways to teach your children good long-term money habits

Question

How can I teach my children good financial habits?

Answer

Managing money is one of the most important lessons we can teach our children. Here are a few ideas that may help your children learn good financial habits.

Pocket money

Pocket money can be a great way to teach financial discipline and the importance of not getting into debt. Try this approach:

• Have a regular payday each month or week

Do not give them any advances or allow them to borrow from the next payday. This will help them to learn about planning and delayed gratification.

• Let them feel the consequences

When they blow their money, don’t bail them out. Running out of cash halfway through the month when you are 12 is painful; running out when you are 52 can be catastrophic. Better to make small mistakes early.

Compound interest

Compound interest is probably our most important financial weapon. Wealth is built by saving consistently and for a long time.

Warren Buffett is often used as an example of being an excellent investor. If you look at his net worth at different ages, you will see the massive impact that compound interest had on his wealth. Over the past 10 years, his wealth grew by more than he built up in the first 70. (See the table below.)

The longer you stay invested, the richer you become, because your money works for you. Bringing this lesson down to basics, show your children this example of investing their pocket money:

• R100 a month for 30 years (a total of R36,000): If it grows at 10% a year, it will be worth about R226,000.

• R300 a month for 10 years (a total of R36,000) ends up at about R61 500.

The important lesson is that time matters more than the amount. A teenager who invests early has a huge advantage over a 40-year-old who is finally “getting serious”.

Saving, spending and sharing

When it comes to money, you can save it, spend it or give it away. If you learn how to manage this from an early age, you can be a lot more conscious about what you are doing with your money.

• Save: A simple rule works best: “We save 10% of all income.” If they get R100, R10 goes to savings. Build the habit now so that when the numbers have extra zeros, the behaviour is automatic.

• Share: Encourage them to donate money to a cause they care about. This could be an animal shelter or a charity. This keeps money from becoming purely selfish and connects it to values.

• Spend: Spend the rest of the money with a clear conscience.

Digital money

When everything happens on an app, it’s easy for children to think money is infinite. Show them how your banking app or budget app works. You don’t need to reveal every rand – just the basics: salary in, debit orders out, what’s left to live on.

Link card payments to their budget: if your 12-year-old wants something online, it comes from the spend jar. You do the card transaction and they hand over cash or move money from their own account.

Teach them about basic digital safety:

• Never share PINs, passwords or one-time codes – even with friends.

• Don’t save any card details on random websites.

• Be wary of “free” games that push aggressive in-app purchases.

Earning money

Pocket money is useful, but earned money carries more weight. For younger kids, pay small amounts for “above and beyond” tasks, not routine chores. For teens, encourage babysitting, tutoring, dog-walking, delivering flyers or selling old clothes online (with your supervision).

This does two things: they realise money is connected to effort and time, not just parental mood, and they start seeing possibilities: “If I can earn R200 this weekend, what else could I build?”

If your children leave home understanding compound interest, the habit of saving 10% of everything they earn, the danger of debt and the joy of generosity, they will be miles ahead of where most adults start. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to kenny.meiring@sfpwealth.co.za