According to recent articles in the media, the average South African is paying 76% of their income on debt repayment… not to mention the increase in unemployment to 26.4% in the first quarter of 2015 (Statistics South Africa) – Does this bode well for our youth’s future?
Wikus Olivier, debt management expert at DebtSafe, one of South Africa’s most valued debt review companies, says “with half of South Africans in serious trouble with their debt, it’s safe to say that a middle class family who is handling their debt effectively is better off financially than an upper class family who is over-indebted.”
“However, while we are celebrating Youth Month, I believe we can teach our children the fundamental roles money play in our day-to-day living; whether it is spending today, or saving for tomorrow,” Olivier adds.
One of the biggest pitfalls of debt is the fact that most people live outside their financial means. The first lesson you can teach a child is to set up a budget. Demonstrate on paper how to allocate money towards things you owe (such as bills and living expenses) and how much money is left for saving. Parents have to be a good example to follow these financial management processes because children copy what their parents do.
“The best age to start teaching your child is three, and adult money habits are set by the age of seven,” says Olivier.
A recent study (in USA) shows that most children under the age of 11 are earning extra pocket money by doing other tasks (washing the neighbors’ cars, doing errands for someone in the neighborhood, etc). This teaches children to learn that money is worked for and not something that must be taken for granted.
Olivier warns though, that chores in and around the house must not be associated with a monthly allowance because every member in a family has to do something to help each other get through life.
Another way to make your child credit savvy is teach them to save money. Rather save money to buy something of value than wasting money over small things such as easily breakable toys.
He continues, “Teaching children financial accountability can be an exhilarating and fun-filled experience. It’s not always easy, but when parents see it through, the rewards are immeasurable. Parents will be giving their children skills that will benefit them for the rest of their lives.”
Parents should highlight through action and conversation, the importance of not over-spending. One good way is by not giving in to every request.
“However, when your child wants to buy something, ask him/her if his/her budget is allowing this expense or if the budget allows for something unexpectedly. If this is something they really want, offer to pay for 50% of the total amount if the child pays the rest of the amount due. Children learn to save and take responsibility of his/her finances by doing this practical exercise,” Olivier continues.
He concludes, “we leverage our knowledge of the debt review process to discover solutions for the over-indebted individual, so that they may also experience a life free from the trauma of debt. We are dedicated to every individual result, giving each DebtSafe client and their family a new beginning.”