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Friday, July 30, 2021

The Fin.Lit Corner: Lessons for ages 6-10

Mduduzi Luthuli

Most parents excel when it comes to teaching safety and good manners, but with money few know where to start. Money skills can be a blind spot because many feel financially inept themselves.

As a society in South Africa, we don’t talk about money – it is seen as a massive taboo.

Unlike other parts of parenthood, there is no playground chatter about the topic and, as a result, parents revert to what they know – passing their habits down to children.

We must ensure wrong habits are not being passed.

In my second lesson about educating children about money, we focus on how to educate children about making wise spending decisions. Multiple parents have expressed that they feel money management is an imperative piece of education that needs to be taught while children are still under their care.

Between the ages of six to 10, children can adequately grasp the concept of choice and consequence. At this age, it’s important to explain to your child that money is finite and it’s important to make wise choices.

They should be made to understand that once they spend the money they have, they won’t have more money to spend. In the words of the great Spanish novelist, Miguel De Cervantes Saavedra, “The gratification of wealth is not found in mere possession or in lavish expenditure but in its wise application.”

One of the best ways to teach your children about responsible spending is to let them have control of their pocket money – or at least a portion of it. Let them choose what to spend their money on each week. Some kids will spend all of it at once on little items like games, toys or chocolate. That’s fine and it’s the first important lesson for them to learn about spending – once the money’s been spent you can’t get it back!

When your child first earns some money via their household chores, their natural impulse is to want to rush out to the candy store and spend it all. Their lack of understanding of nominal value makes any amount seem large and thus they are injected with the impulse of what can I buy with this much money?”

When they get to the store and are slapped in the face by the reality of inflation and value, their question is answered as, you can’t by much. They are left feeling dejected and frustrated. Much like most of us on pay-day unfortunately. This predicament is a learning moment though, one which you should take advantage of. Children are much more inclined to learn and implement principles they see in you than concepts that are preached to them.

Show them how: Teach them to Manage the Money they earn

Dave Ramsey teaches a system for managing finances, designed for kids to manage their finances. It is simple and can be understood from a very young age. Have three jars…

  • A Giving jar: give at least 10% to charity.
  • A Saving jar: Pay yourself first. You can split this into long and short term saving if you would like.
  • A Spending jar: They need to have a jar that is available to them to spend on whatever they would like to spend it on

The saving and spending jars can be broken up however you and they agree upon, but each of these areas are important to managing money in a healthy way. This is an extremely uncomplicated way to break down their money in a way they can understand and a way that you can successfully help them with. This simple concept can encourage your children to plan and save money to achieve their desired goals.

Putting money away for them and allowing them to watch their money grow will teach them to be more patient and disciplined with their money. Help them to draw up a budget each month and let them take control of their spending. Whenever possible, go shopping with them and guide them when necessary. It is never too early to teach your children the principle of “paying themselves first”, by first allocating any pocket money to their budgeted savings before spending, and not saving only if there is anything left over after their monthly spending. To keeping this article short, I’ll elaborate further purely on the spending jar.

Spending Jar

You might not think you have to teach your kids how to spend money, but this is the one area where most people’s money problems begin. Teaching your kids how to spend their money wisely is crucial. This is where tough love and “learning from your mistakes” comes into play.

Try allocating a minimum of 40% of your child’s “income” in the spend jar, and it’s up to them to decide what they want to do with it. If they want to take it all and raid the candy store in one fell swoop, so be it, but they need to be taught that once the money is gone, it’s gone.

Teach your kids the value of items, how much things cost, needs versus wants, and how to buy only what you can afford. Guide them in their spending decisions, but don’t be afraid to let them make the final choice.

  • Pre-schoolers: Start teaching your pre-schooler the names of coins, how to count them, and how they fit together. Show them when you’re at the store how you trade money for items you want. Read age-appropriate books about money.
  • School Aged: Step back and let your child pay for their items themselves. Have them count out the notes and coins, let them give the money to the cashier, and allow them to take the receipt and change. Show your child you have confidence in their abilities and let them feel like a little adult for a moment!
  • Teens: If your teen has a cell phone, start having them be responsible for paying their cell phone bill. This will give them a taste of the real world, help them value their “stuff” more, and teach them about prioritised spending.

Moms and dads, make sure to set a good example for your kids when it comes to being money-savvy. It’s important to show your kids that you’re also smart about where you spend your money, and that you’re not simply spending it willy nilly. Kids learn a lot by following their parents, and money is no exception!

Mduduzi Luthuli is the CEO of Luthuli Capital, a Pan-African, multi-specialist advice-based practice that offers an independent global approach to your wealth-management portfolio

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