Teaching children the importance of saving and investing is crucial: the earlier we learn disciplined financial behaviours, the greater our ability to exercise these muscles in adulthood.
With teenagers, the responsibility of managing their own bank account represents a significant step in learning to manage their finances. Positive reinforcement can be very important at this age, and trusting your teen with their own bank account can teach them important lessons.
You can also use a bank account to encourage your child to develop healthy savings habits. For instance, your teen should look to save at least 30% of all the money they receive. To incentivise them to save, you could offer a “double up” if they have any money left in their bank account at the end of the month.
However, parents should be careful not be too controlling regarding how children spend their money, or key lessons of budgeting and saving will not be learnt. It’s easy to assume that kids will spend wastefully, but you may be surprised to find that your child is quite astute and will quickly realise the power of saving, as well as the vital lesson that instant gratification does not always lead to lasting enjoyment.
Young adults are usually more independent, and we can only offer advice and guidance such as:
- Steering clear of loans and credit cards which charge high interest rates on debt: Showing your child why these are dangerous on a spreadsheet can be even more impactful than simply telling them.
- Starting a simple budget to see where their money is going every month: This will help them to cut back on any wasteful spending and reduce unnecessary expenses.
- The importance of investing, and the power of compound interest for growing wealth: Again, this is best done when a first investment in made into a tax free saving or offshore investment, or even dabble in the stock market with your assistance. Nothing like skin in the game!
- Being entrepreneurial and making their own money: Have discussions with your children about being entrepreneurial. You could even encourage them try out small business ideas on the weekends, such as selling items at craft markets and flea markets. They can then learn from these small businesses without too much accountability.
Written by: Citadel Advisory Partner Christelle Louw