Five tips to empower children with financial literacy

Financial literacy is not something that comes naturally to many people.

We learn as we grow and it is our responsibility to teach the younger generation about how to have a healthy relationship with money.

But where do you start having a conversation with your children or young relatives about money?

How uncomfortable does that make you feel?

Sanlam chief marketing officer, Mariska Oosthuizen, says speaking about finances “makes money less intimidating and gets children familiarised with foundational concepts from the get-go”.

“Finances is not a dirty word,” says Oosthuizen, adding that people should start talking about it.

“This is exactly what Sanlam’s Project F campaign aims to achieve. We want to get people speaking about money more. This is directly linked to improved mental health, better financial decision-making and improved outcomes.

“Parents often wait until kids are older to start speaking about money. However, Cambridge University behavioural researchers revealed children start learning about money from as early as three, with most of their money attitudes formed by seven. So, it’s hugely advantageous to weave age-appropriate money talk into your everyday parenting early on.”

Oosthuizen says speaking about money makes children feel respected and included.

“It allows you to model and vocalise the behaviours that could set the course for their mental money scripts and formative money memories.”

Oosthuizen shares five critical money conversations to consider having with your kids:

The value of money and how it’s earned: Understanding the value of money is the foundation of financial literacy. Teaching children that money is earned through work helps them appreciate its worth. Explain different ways people earn money, whether through traditional jobs, entrepreneurship, or investing. Discussing your own work and how it translates to money can make this concept more tangible.

How to discuss it: Use real-life examples to explain your job and what you do to earn money. Use play to model key concepts. For example, set up a pretend shop and let your little one “sell” you their toys for R1, R2 or 50c to familiarise them with coins and the idea of exchange. Later, start to introduce chores – like keeping a room clean – for small sums, to instil the understanding that money is earned through effort.

Spend, save, give: Children see their parents spend money but don’t always observe what’s happening behind the scenes – hard work, saving, investing and giving back. It’s crucial to vocalise these behaviours and practice them together.

How to discuss it: Introduce the concept of a simple budget, dividing a child’s allowance into “spending, saving, and giving”. Use jars to visually represent these categories. Encourage them to set short-term and long-term savings goals, such as saving for a toy or a special outing. Share what kinds of causes you support and give your child some options of charities they could save for as well. Then talk through some of the things you spend your money on and why. Gently, keep bringing it back to the fact that you work hard for the money you spend.

The difference between needs and wants: Distinguishing between needs and wants helps children prioritise their spending and understand that they cannot have everything they desire. This lesson is crucial in developing wise spending habits and avoiding impulsive purchases. 

How to discuss it: When shopping, involve your children in making decisions by asking them whether an item is a need or a want. Discuss why certain purchases are necessary and others are optional.

The basics of saving and investing: Familiarity with banking concepts and the role of interest helps children understand how money can grow over time and the benefits of saving and investing. This knowledge is essential for them to navigate financial systems effectively in the future.

How to discuss it: Open a savings account for your child and show them how deposits work. Explain how interest accrues on savings and why it’s beneficial to keep money in a bank. Use simple, age-appropriate language to make these concepts clear. For an older child, try drawing a piggy bank with R10 inside it. Draw a R1 coin next to it. Then draw R11 inside the piggy bank. Now draw R1.10 next to that. This shows them how money grows each year it’s invested.

The impact of debt and credit: Understanding debt and credit is vital for making informed financial decisions. Teaching children about the consequences of borrowing money and the importance of maintaining good credit can prevent future financial pitfalls.

How to discuss it: Explain how credit cards work, the concept of borrowing money, and the responsibility of paying it back with interest. Offer your child the opportunity to borrow R5 for the shops, if they promise to pay you back later that day, plus an extra R1 in interest. Let them know that if they don’t pay you back on time, they’ll have to pay you an extra R2.

mashabas@sowetan.co.za