Mduduzi Luthuli
As a parent you can teach your child important financial lessons.
The parents of a child who has kicked and screamed demanding the latest PlayStation game or merchandise from Disney’s latest princess movie, probably haven’t uttered the words “delayed gratification” in their response. However, such terms could become a valuable tool in teaching children about money.
As a parent, I understand that the concept of money and the importance of saving are difficult to explain to a child. You would have to think of how best to illustrate the value of saving and having extra cash on hand, versus just spending everything the minute you get it.
Children are, after all, intent on instant gratification.
Most parents excel when it comes to teaching safety and good manners but have no idea where to begin when teaching about money. Money skills can be a blind spot because many people feel financially inept themselves. As a result, parents subconsciously revert what they know – and inadvertently passing their habits down to children. We have seen this and learn it from our own parents and now we live month-to-month with hardly any money to save or invest.
The latest debt-to-income stats communicate that the wrong habits are being passed on from generation to generation. Credit extension is growing faster than job creation, and the moribund economy cannot carry that burden forever.
The 2014 – 2016 World Bank report on consumer credit-use statistics showed South Africans were the world’s “biggest borrowers”. Consumer credit-use statistics show a comparison between employment and credit consumer numbers. The figures suggest that South Africans are failing to manage their debt responsibly and that some credit providers might be missing the mark regarding their criteria in affordability assessments.
This is a symptomatic problem that will affect future generations.
Studies show children as young as three can grasp financial concepts like saving and spending. It therefore becomes critical for parents to note that their children’s money habits are formed by age 7. This means that without proper and concerted effort to teach your children lessons in financial management, some damage may have already have been done by the time they reach Grade 1.
Advise to young parents
Financial lessons must be age appropriate to resonate with young children. Lessons should be tailored for their age rather than just made simpler.
Start as soon as they can count and make money the topic of regular family discussions. The key is to turn your day-to-day activities into learning experiences. Trips to the bank, store, or the ATM machine, for instance, can be a perfect opening for a discussion about your values and how you use money. The sooner parents start taking advantage of everyday teachable money moments, the better off our kids will be.
Parents are the number one influence on their children’s financial behaviours,
It should be one of the parent’s primary objectives to raise a generation of mindful consumers, investors, savers, and givers. The first step is to teach your children the importance of patience and discipline. Concepts hard enough to learn at any age but if properly mastered, can be a great foundation for creating sustainable wealth.
The ability to delay gratification can also predict how successful one will be as a grown-up. Children need to learn that if they really want something, they should wait and save to buy it.
Parents must know that it is alright to say no. As adults we are often told no, whether it is from employers or the bank, and children need to hear it. Renowned clinical psychologist, Dr Elizabeth Kilbey, warns against saying you can’t afford it.
It’s easy to use this default response when your child begs you for the latest toy. But doing so sends the message that you’re not in control of your money, which can be scary – and create future anxieties. A more appropriate way is to say: We choose not to spend our money like that.
Marshmallow Test: The famous study in self-control and delayed gratification
Psychologists have studied why some kids seem to excel at demonstrating self-control and delaying gratification, while others struggle for long time. The famous “marshmallow test” conducted by Walter Mischel, an Austrian-born American psychologist specializing in personality theory and social psychology, and a team of researchers at Stanford University in the late 1960’s and early 1970’s, looks at the relationship between self-control, avoiding instant gratification, and how that informs the development of a person’s character into adulthood. In the study, four-year-old children are presented with a marshmallow and informed that they could either eat a marshmallow now or wait 15 minutes and receive two marshmallows. Some children gobbled the marshmallow immediately, while others managed to wait the full 15 minutes and receive the reward of a second marshmallow.
The researchers continued to follow up with the children for the next several decades. They found that the four-year-olds who had successfully waited for 15 minutes differed in significant ways from the children who couldn’t wait. Over the years, the children who had “passed” the marshmallow test developed the following characteristics: better emotional coping skills; higher rates of educational attainment; lower BMI; lower divorce rates and lower rates of addiction
The lesson here is not to show how some people are supposedly born with better self-control or that this trait determines their entire life trajectory, but rather that these skills can be acquired, it takes time to acquire and master them, and if mastered can result in a higher probability in that person being well-rounded and enjoying a better quality of life.
The researchers continue to conduct a lot of variations on the marshmallow test. In some of their studies, more children were able to resist the siren call of the marshmallow because the researchers taught them how to delay gratification and wait for better results.
Walter Mischel concluded that “pre-schoolers” tended to wait longer when they were given effective strategies. In other words, self-control and delayed gratification are essential life skills but they can be learned.
Teaching our children about how to be financially savvy and financially literate should start as early as possible. Setting the foundation with this advice will help your child in the long term. They will know how money can be earned, and how waiting for something bigger can be a good thing. You can even try a version of the marshmallow test with smaller children to explain the concept of delayed gratification. With solid financial foundations, you will be proud when your child grows up a responsible, financially savvy adult who contributes to the economy. Lord knows we need it.
Mduduzi Luthuli is and investment banker and CEO of Luthuli Capital.
