Wednesday, February 15, 2012

As a staggering number of South Africans thrash in suffocating debt, Budget Insurance Brokers is highlighting the pressing need for parents to start teaching their kids early about money and how to manage it.

“Start teaching your children about managing money from a young age. They are ready to start learning basic concepts from when they start counting, and if you haven’t started teaching them by the time they’re nagging you for unnecessary items that you actually can’t afford to buy, you better start quick,” says Telesure MD, Thomas Creamer.

“We live in an era of instant gratification, when paying for something is as easy as whipping out a plastic card and money is ‘intangible’ yet seemingly always available. Children see this, and they learn from us. Unless we teach them otherwise, we’re only showing them how to enter the vicious cycle of debt that so many South African families are currently trapped in.”

And, more and more South African households are getting trapped.

The Consumer Debt Report complied in 2011 by Credit Matters, one of the largest debt counselling companies in South Africa, revealed that on average, South Africans use about 75% of their salaries to service debt.

It also showed that more than 9.8 million people have bad credit records, with accounts three or more months in arrears. Household debt is hovering at R1.2-trillion, up from R952-billion in 2008. The report is based on interviews with financial industry experts, debt counsellors, and information from Statistics SA and the National Credit Regulator (NCR).

With debt being a common way in which to live, Creamer says parents should make sure their children have an accurate, realistic perception of money and set them on the right path before they end up as part of the country’s debt statistics.

Ideally, parents should teach by example. If parents are prudent and responsible with money, their children are more likely to be as well. One of the hardest lessons to demonstrate to a child is that money is limited, or that, as the old adage goes, “money doesn’t grow on trees”.

“When they see you approach an ATM, put in a card and be presented with money, or hand a cashier a card and walk away with goods, it is difficult for a child to grasp that these cards merely provide access to a limited stash of money. Explain the process and make sure they understand that you can only pay for things if you have the money available.

“Saying ‘no’ to unjustifiable requests for money or items is a good way to demonstrate that the supply of money isn’t infinite. Also, ensure that they understand the difference between wants and needs to prepare them for making sensible spending decisions,” says Creamer.

Thomas Creamer offers this advice for raising money-smart children:

  • Introduce young children to the concept of saving by buying them a piggy bank and allow them to put coins or their pocket money into it. Regularly count the money so that they can see how the amount of money grows as they save.
  • When your child wants to buy something with their pocket money, allow them to hand over the money to the cashier to pay for their purchases. This illustrates how money is exchanged for what they want to buy, and how they are left with less money once they have made a purchase.
  • Encourage your child to save for something special rather than just buying it for them.
  • Don’t lend your child money if they have spent all their pocket money before the end of the month.
  • Talk to your children about money. Make sure that they understand that household expenditure should not exceed the monthly income.
  • Teach older children about planning their spending and sticking to their own monthly budgets.
  • If you loan your children money, make sure they pay it back by deducting a portion from their pocket money each month until it is paid off.
  • When you are out shopping, show them that certain items cost more because they are branded. Explain how they can make their money go further by not buying branded items such as clothes.
  • Open up a savings account for older children. Show them how to deposit pocket money or money earned from part time jobs into their accounts and teach them to read their ATM statements, pointing out how withdrawals and deposits affect their balance.

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