When we think about our legacy, it usually involves things like building a solid career, raising well-adjusted children and passing on cherished family traditions. But your legacy could also be about teaching your children the life lessons and everyday habits that your parents and grandparents taught you, either through you modelling their behaviour or by heeding their advice.
As a country rich with diverse cultures and means, the question is, what financial legacies are families in South Africa passing down to their children? Families play a vital role in the way that people relate to money. From a young age, children are observing their elders’ spending habits and behaviour – whether good or bad. These habits can easily be passed down to children. Some people were taught from a very young age the importance of budgeting and saving, while this lesson may be a foreign concept to other people.
Clyde Parsons, Chief Innovation Officer for life insurance provider BrightRock, has these five important smart money habits to pass down to your kids.
- Never live beyond your means – These days it is far too easy to spend more than you earn. Loans, credit cards and store cards all offer temptations that are difficult to resist. Kids are exposed at a very young age to the idea of ‘Keeping up with the Joneses’, when their friends wear expensive brand name clothing, for example, or always have the latest game console. Teach your children the value of every rand, and help them realise how their money can quickly run out and their debt speedily spiral if they cultivate expensive tastes.
- 2. Save, save and save some more – Children should understand the concept of saving for expenses that they can’t anticipate, such as a broken mobile phone or a stolen pair of shoes. Also emphasise the importance of saving up for things they want, and not going into debt to get them. The old-fashioned piggy bank is a great tool to cultivate a savings attitude in children. Children are master negotiators, so encourage them to develop their negotiation skills and put them to good use in managing their future finances. Teach them to seek value and opportunity.
- Avoid the debt trap – Owing money can be one of life’s biggest worries. A good way to emphasise how debt drains your finances is to show your children concrete, visual examples of how the monthly interest paid on debt is a waste of their hard-earned cash with absolutely no return. However, if they should get into debt when they are older, teach them how important it is to pay off those high-interest debts first.
- Anticipate the worst – You never know what life may throw at you, which is why needs-matched life cover is so important. By having enough cover in place to protect your assets and liabilities, you will be able to provide your children with financial security in the event of a serious illness, disability or death. Ask your financial adviser for cover that is able to change as your life changes – needs-matched cover will save you money while getting you more cover. On average, you can get 40% more cover for your premium with a needs-matched solution. It also is a good idea to start educating your kids about how they can plan for the unknown. Instil in them a strong sense of responsibility so that they protect their income from the day they start earning their first monthly paycheque. Also encourage them to continually review their financial plan as their needs change, and not just put the money away every month and forget about it.
- Stick to your budget – Budgeting is probably one of the most important pieces of knowledge that you can pass on to your kids. They need to be very familiar with the concept of planning ahead and limiting unnecessary expenditure. Teach them the difference between luxuries and necessities and how they should approach what they spend their money on. Ensure they know that any money they have left over at the end of the month should immediately be put into savings.
