By teaching your children to save and invest wisely you are empowering them to own their tomorrow, says Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA).
“If we are to change our culture of excessive spending and consumption and become a nation of savers we not only need to understand and appreciate the value of saving, but we also need to pass this knowledge on to future generations,” he adds.
Campher reminds that South Africa has one of the worst savings cultures in the world. According to the South African Reserve Bank the South African household savings rate is a dismal 1.7% of GDP. By comparison, countries like China, India and Turkey have household savings rates of more than 20%, some of the highest in the world.
He says a strong savings culture not only ensures the financial well being of South Africans in the long-term, but it is also essential for the country’s economic development.
“The immediate, visible benefit of saving money is your financial security. But if all of us improve the country’s savings rate by spending less and saving more we also create a strong economy, which leads to job creation and ultimately lower interest rates and inflation. The reality is that a country’s savings are the backbone of its development.”
Campher says it is for this reason that it is so important that future generations better understand the importance of saving and embrace a different approach to spending.
“One of the most important lessons you can teach your children is that money is a precious resource and something that someone has worked for,” he says.
Campher says all parents should teach their children the following truths about spending and saving:
- By not saving today you are compromising your ability to buy something meaningful like an education, a home or a comfortable retirement in the future. Teach this lesson by encouraging your children to go without a treat that would provide instant gratification and instead save up for something big.
- Don’t spend your life funding a liability like a car, a TV or an appliance by buying these on credit. Unlike a home these are not assets since they lose their value as soon as they leave the shop floor. Lead by example and explain to your children that you do not want to be a slave to debt in order to own the latest model car or a state-of-the-art electronic device.
- If children see you buying whatever you want using a store card or a credit card, they will grow up thinking that buying without actually having the money is the norm. When using a credit card, explain to your children why you are using the card and what the implications are.
- Using bank cards is cheaper and safer than cash. Teach your children about banking by opening a bank account that comes with a debit card as well as a savings account. Pay their pocket money into their account and encourage them to save a portion and to pay for their purchases with the debt card.
- Your best investment will always be to pay off debts first, including your mortgage bond. If you have spare cash and you use it to invest while still servicing debt, you are effectively borrowing money to invest on the stock exchange. Explain to your children that debt is expensive and that there is a cost attached to borrowing money. Currently the typical interest rate charged on clothing accounts is 21%. You are unlikely to get the same returns on your savings and investments.
- Once all your debts are paid appoint a trusted financial adviser and invest your money. Teach your children about the power of compounding, which is the growth achieved on your original investment plus the growth on the returns already earned.
- Successful investors invest first and spend what is left of their income, while those who spend first rarely get to invest the amount required to meet their long-term goals. Teach this by encouraging your children to remove the savings portion of their pocket money first, before you take them shopping.
- A budget is a powerful tool in helping you save. The budgeting exercise will provide you with the big picture needed to help you prioritise your spending and plan your finances. Do this with your children – it will give them a better understanding of how much it costs to run a household.