Your child’s ability to manage money now and into the future is highly dependent on the money habits instilled at a young age.
A 2013-14 report on Habit Formation and Learning in Young Children by Dr David Whitebread and Dr Sue Bingham shows many children’s money habits, like self-monitoring, are developed as early as the age of seven. So, teaching your children financial literacy from a young age gives them a better chance of having a healthy relationship with money, which can benefit their financial as well as their psychological health.
Some age-appropriate money lessons parents can teach their children and which they can practise throughout their lives are highlighted:
Age 3-6 – Hello Money!
Teach your children to manage their impulsivity through the robot system – a simple “stop to think before you do” concept. Giving in to all your children’s demands gives the impression that resources are limitless, which could later result in their overspending and issues with managing debt.
Educational TV programmes such as Takalani Sesame are also a great way to instil the basics of financial literacy in young children in a relatable and exciting way.
Age 6-10 – Hey Big Spender!
At this age, it is time to teach your children the value of money and the concept of earning it. As the saying goes, “money doesn’t grow on trees”. Teaching your children the concept of earning helps them to think of ways to do so, for example, washing cars or cleaning neighbours’ gardens to earn some pocket money.
Introduce and reinforce the three S’s of Saving, Spending and Sharing for any allowances, gifts and money earned. This will teach them how to manage their money, spend responsibly and save to benefit from compound interest as they grow.
Age 11-13 – It’s all about consequences
As children become teenagers, they begin to develop a stronger sense of independence, reasoning, and appreciation of the long-term consequences of their decisions. Teaching them about good and bad consequences when it comes to managing money is an important lesson they need to learn as they begin to desire more independence.
Encourage commitment to short-term and long-term goals by allowing children to develop their own goals and then helping them put together a savings plan, with regular check-ins to see how they are progressing. By doing so, they will think twice before spending and will think of other creative ways to achieve their goals.
Age 13-15 – Creating wealth builders
At this age, parents need to learn to let go and give their children room to test-drive their finances in a safe space! Reinforce the financial habits and concepts of earning, saving and investment, sharing and spending. Give children control of their bank account and access to an online profile. Keep encouraging your teenager to talk about finances and to read about money-related matters.
While they are not old enough to work in the real world, they can volunteer to learn the skills that can help them earn money in the real world. Encourage them once again to come up with ideas on how to earn more money – babysitting, walking dogs, or selling home-made goods.
Age 15-18 – Preparing for the real world
By now, children should have a solid foundation of financial literacy. However, if you have not started yet, it is not too late to start by leveraging the lessons shared above. As their high-school years are nearing a close, it is important to instil the concept that some things cost a lot of money, which may require the use of debt. A good way to avoid or limit the use of debt is to plan ahead and to know what good and bad debt is. Parents should teach their children about bad debt and why it is better to save than to get a credit card or negotiate loans for unforeseen expenses.
By teaching them financial literacy and instilling good financial habits, you are giving your children the ability to thrive financially and weather the difficult financial times they may encounter in the near future.
Sanlam is a Licensed Financial Services Provider.