If your child can fish financially, he is set up for life
By Andró Griessel
19 November 2019
Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime. The Chinese proverb is true in life, but also when you need to teach your children about money and the principles around saving and spending it.
In this article, fish is a metaphor for money.
I encounter countless parents who do not hesitate to give their children buckets full of fish rather than equipping them with a fishing rod.
There is nothing wrong with this approach if there is an abundance of fish, but what potential calamities lie ahead for your child if all the resources are depleted, stolen or contaminated?
By teaching your children from a very young age some basic principles around finances and how to work with money, you might just give them a huge advantage in life.
Some of these principles are discussed below.
Teach them about deferred compensation
Instant gratification is probably one of the biggest transgressions of our modern time. Especially social media gives us the perception that everything in life must happen in an instant. However, for most of us, there is no shortcut to success or wealth (or anything that matters in life for that matter).
Retirement planning is probably the mother of deferred compensation because you have to sacrifice pleasures and benefits today so that you can retire in comfort 30 years from now.
Unfortunately, very few people can retire comfortably for exactly this reason.
If you can teach your children to be patient and save for the things they want, they will probably also learn how to distinguish between what they “want” and what they “need”.
The urgency to buy usually fades over time if it is a “want” rather than a “need”.
Teach them where money comes from
Children often think of money as water flowing from a tap, that if the tap is open, money will infinitely flow from it or that money grows on trees and parents can just reach out to pick more.
The best way to get rid of this perception of a tap that can theoretically flow forever, give your child a pitcher instead and teach them to use its contents sparingly until it can be filled again.
Children must learn from a very young age how to work with a budget and how to plan for what they want to buy. If they have depleted their pocket money before month-end…tough luck!
It may sound cruel, but trust me on this one, this principle is learned very quickly if it is implemented correctly. The more mature and independent your children become around money matters, the more responsibility you can give them.
Teach your children the principles of compounding interest and opportunity cost
This principal is exceptionally important to grasp for teens because the implication for them is prolific. A 15-year-old has around 50 years left before retirement. If they understand the 8th wonder of the world, they would probably be less inclined to waste their savings on trivialities.
R 30 000 that grows at 12% per annum will be R 8.67million in 50 years’ time or R 750 000 in today’s terms. When your teenager is begging for a R 30 000 bike, maybe try to give him perspective by suggesting that he can buy a second-hand bike for R 15 000 and have R 4.3 million at retirement!
If he understands the implications of his decision by comparison to an alternative investment option, the penny will hopefully drop, and he’ll re-prioritize his decisions.
The same principle holds true for weddings. To spend R 500 000 on a wedding does not seem to be extravagant nowadays, but the opportunity cost for this decision is enormous.
Blunders has financial implications
My 1st year at university was my worst. I had to repeat the course and ironically this was also the (only) year that my parents paid for.
Needless to say, once I had to apply for my own student loan, I got my act together and my results improved significantly with the realisation that every repeated subject will cost me dearly.
Most parents think that paying for their children’s education is the greatest gift of all.
This is probably true, but not teaching your children how to handle the financial pain of failure, and allowing them to make multiple changes before settling on a career path, will probably set them up for financial pain somewhere in the future.
The display of wealth is not the same as being wealthy
We as grown-ups (most of us) have already learned this, but it is very difficult for teenagers to grasp.
Try to teach your children the correct principles about money even if they are fortunate enough to grow up in a wealthy environment.
Children must understand that luxury is the fruit of wealth and not a constituent thereof. Accumulating wealth is a chicken-and-egg scenario. You need the chicken before you can enjoy its eggs.
Andró Griessel is a certified financial planner and managing director of ProVérte Wealth & Risk Management. Contact him at firstname.lastname@example.org
Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial advisor. ProVérte Wealth & Risk Management is an authorised financial service provider with FSP no. 5966.