How to teach your kids financial independence

Financial independence is a goal a lot of us pine after. Imagine not having to look anyone in the eye for a money favour – not even the bank. If all your debt can be history, watching that bank account with a hawk’s eye every month …

If you listen to financial advisers, such a dream is not the privilege of the privileged only. Many of us can at least try to make progress on this road by being diligent and having a plan.

This plan is something that can start from that first salary, or, I believe, even younger. That’s why I’m trying to instil in my children a practical approach to managing money. I want them to experience financial freedom one day.

As children we often play games, pretending we’re grownups, like playing “hospital” or “school”. In the same vein I want my 11-year-old to play he’s Mom and Dad and holding the purse: Firstly, I give him the opportunity to “earn” by doing chores. I take a little “tax” from each amount, and he doesn’t know that I put it away for him anyway.

We’ve also opened a bank account to make him feel “big”. It’s my opportunity to simplify how interest works, and compound interest – however small his initial savings, I show him the calculation of what will happen if he starts earning interest on the interest, too. Plus, and this may sound harsh, I charge a little interest if he borrows money from me if his pocket money runs out. How else will he learn accountability?

The most fun for him is when we use the supermarket as “playground” for money decisions:

A rubber for school is a “must” but if he doesn’t lose his, we don’t have to buy another next week. I encourage him to compare the value of two packets of action men – which one will give him the most hours of pleasure for his pocket money?

I point out to him that the shelves next to the tills look so alluring but that we don’t “need” sweets or toys each time we go. I admire his obvious restraint in not asking for something, and sometimes I give him a gold star for his discipline by buying a treat. I also want to get across that we’re allowed to enjoy our money, especially if we’ve been thrifty where it matters.

When we hop into the café for bread and milk, he must calculate what it costs, and we’ve even started a game to write up how the prices of these two basics increase from time to time. I believe one of these days I’m going to hear: “Our money is shrinking, Dad!” Yes, it is, but his knowledge is not.

For bigger expenses, I try to meet him rand for rand if he has shown some commitment to saving up for Lego. We took this “game” one step further by looking for different prices online, and of course, I took to opportunity to give a sermon on online safety.

In my own life, my financial adviser keeps me on the straight and narrow regarding milestones such as paying off our home as soon as possible, saving up for holidays beforehand, and keeping an eye on how the retirement money is ticking.

Regarding my children, I’m also considering taking out retirement annuities for them so long. The actuaries at Investo have calculated that R500 in the Momentum Focus 7 Fund of Funds for a term of 65 years, growing at 6% per year, will give the following:

*Real value shows how much you could buy with your future savings amount today. It helps you understand how money will lose value because of inflation.

The table shows the power of compound interest, or earning interest on interest, instead of growth only on the capital invested. The longer you stay invested, the better the money grows.
I believe we all can, by taking control, manage our finances better and not stay stuck in the debt net. We can be financially free and live life on our own terms.