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Your kids and debt

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Cape Town - Where do kids learn about money-management styles? From their parents, of course. And don’t think they aren’t watching. They are.

If you’re struggling to manage your debt and your finances in general, your kids will get to accept that as the norm. It makes sense to teach kids about money, financial attitudes and debt before they become adults and find themselves having money troubles.

Many parents are reluctant to discuss financial issues with their kids. And some are confidential – your child doesn’t need to know how much you earn, but by all means share what the monthly electricity bill is, or how much is spent on food and petrol. Kids need to know what things cost, and what they can reasonably expect from their parents.

If they don’t know, life in the big wide world is going to be a horrible shock for them. Money is not just for cellphones and clothes – cash has to be spent on washing powder and underwear and insecticide and all sorts of other unromantic things as well.

Here are a few tips about children and money:

It is never too early for children to learn about money. Money is a tool, and we need to use it correctly. The sooner the better for children start learning about money and how it works. Show them how you exchange money for goods. They also need to learn that it is earned, that you don’t have an endless supply of it, and that there are things you cannot afford.

Teach kids that cash is king. If you pay cash for something, you will not pay interest on the purchase price. That goes for appliances and clothing, but few people can pay cash for things such as houses. Get kids to work out how much a bicycle costs when paying cash, and how much it would cost when paid off over 12 months. Buying on account is convenient in the short term, but it costs you in interest over the long term. Accounts also tend to encourage you to buy things you do not absolutely need.

Designer debt. Labels costs money – and often are no better than similar items from less fashionable outlets. It’s tough, because you are up against the whole world of advertising, which tries to make us think that possessing certain things makes us socially more acceptable. Adults are conned by this, and so are kids. Try and make your kids understand how this works. Also that advertisers never encourage us to make do with what we have, but they do encourage us to replace things, such as mobile phones, which are still in perfectly good working order.

Give kids a budget. Get them to decide how they want to spend their own money, and don’t intervene if it is misspent. It is a mistake they will only make once. Kids on a budget (with their own ATM cards as well) very quickly learn how to plan and spend their money in a way that serves them best. If you intervene, you will possibly be bailing them out for the rest of their lives. Don’t do it.

Children learn from what they see. Take them along when you transact. Let your child see you pay for your groceries with your debit or credit card and then explain that process to them. Take them along to the ATM. Take them into the bank with you and let them familiarise themselves with financial institutions. Nowadays with so many of our transactions done via internet banking, kids often don’t see transactions. A valuable lesson is also to show them if the ATM refuses your transaction. What better demonstration is there of your funds being finite?

Show your children how a budget works. Your kids don’t need to know how much you earn, but you can teach them that debt is the result of expenses exceeding income. Use the opportunity to explain to them why a big item, such as big-screen TV, cannot be purchased in one month, but must rather be saved for over a few months.

Teach them the difference between luxuries and necessities. Young kids do not know the difference between wants and needs. Show them by using examples from the household, e.g. bread is a necessity, but chocolate a luxury. School fees are a necessity. A holiday away is a luxury. They also need to be made aware of the payoff of delayed gratification.

Teach your children the importance of saving for a rainy day. A crisis can strike at any time. Your car could need a new gearbox, or you need to take the plane to be with a sick relative. Having some savings can prevent having to take out expensive loans, or having to ask friends or family for money. If your kids see you saving, they will most probably do the same when they grow up.

Encourage them to set goals and teach them to save. Children should get into the habit of saving as early as they can. It is a practice which will stand them in good stead for their whole lives. Many parents encourage this by offering to match the amount that the children manage to save. It is always tempting to spend a windfall on luxuries. Show kids how important it is to save part of it for a possible future crisis.

*Add your voice by sharing your debt  experiences, debt-busting tips and insights. Have a question? Ask our experts.

Disclaimer: Fin24 cannot be held liable for any decisions made based on the advice given by debt experts. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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