Attention, PEP parents!

Financial literacy is not a birthright. The onus is therefore on parents and guardians to raise children who are financially fit — a process which can begin in early childhood. Research has shown that many parents are reluctant to talk money with their children for fear of worrying them with 'adult' concerns, or because they think the children won't understand. However, a survey by global investment management firm T Rowe Price has revealed that parents who discuss finance with their children are more likely to raise adults who practise budgeting, save for their goals and emergencies.

An early introduction to topics like investing and wealth creation is therefore quite likely to help to lay the groundwork for families who want to build and sustain multi-generational wealth. Here are some lessons you can teach your children to put them on a path of achieving financial freedom:

1. Money must be earned

Children should be included in conversations about money as early as possible and should be exposed to a range of ways to earn and accumulate it. Teaching children that money must be earned is one way to familiarise them with the concept of money being a finite resource. As a parent, you can consider giving them a small allowance in return for their participation in some chores or tasks. You can also have them take on additional duties to earn extra money. This way, they will be able to appreciate the value of money, while learning accountability and responsibility.

Additionally, if your child has a hobby that they can turn into an opportunity to earn money and they are good at it, you can encourage them to do just that. You may be helping to build the next generation of entrepreneurs.

2. Budgeting is the foundation of financial planning

Budgeting is the cornerstone of any financial plan, and helping children to develop their budget will give them a sense of ownership over their money. In addition, this can help to build their confidence in managing money. If they are to be better money managers in the future, they will need to learn to live within a budget. So be sure to start including them in conversations about the family budget. From there, you can then help them to get into the habit of creating their own budgets for their own money.

3. Build a habit of saving (and investing)

Consider making a calendar to help your children get into the habit of creating financial goals. You can help them to determine how much they will save each week, month, or any amount of pre-determined time to help cultivate the habit of saving. You can also open a joint account with your children and get them into the habit of making regular deposits from their earnings. When they have accumulated enough, take it to the next level and introduce them to wealth-building through investing.

Educational content in the form of age-appropriate books, videos, stories, apps or even movies can be a fun way to start the conversation around investing. Teaching children the value of earning compound interest through continuous investments over time can also be rewarding — in more ways than one.

4. There are many different types of investment tools

As they grow and get into the habit of saving and investing their own money, take it a step further by introducing them to the different types of investments and wealth-building instruments. Be sure to teach them about things like:

Unit Trusts — Unit trusts can give your child access to a wide range of investment assets, without having to manage them on their own. This is an attractive investment product for youngsters given the diversification that is built into it. Additionally, they are managed by experts in the field, which allows your child to benefit from a portfolio that is optimised to deliver maximum returns on investments.

Stocks — As your child gets older and can have more wide-ranging conversations about their portfolio, then you can introduce them to stocks. Investing in stocks is a popular tool among investors. It allows you to own a percentage of a publicly listed company, which means you actively take on the risk of its expansion or decline in the market.

This is also a good opportunity to teach them about the fundamentals of how companies work. Children like tangible things, so a good way to help them to connect with their stock portfolio is to help them invest in familiar brands and companies. Ownership of stocks in consumer goods brands recommended by your investment company is often a good place to start. This also means that parents must discuss the concepts of sales, expenses, and profits, all of which are critical considerations when investing in a company.

Children live what they learn. Whether you prefer to learn from books, Internet videos or online courses, be sure to take your children with you on your financial journey, as you deepen your own understanding of wealth, investments, and finance.

Nadine Thomas, assistant vice-president – Private Wealth, NCB Capital Markets Limited (Photo: Paul Mullings)
Nadine Thomas

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