It is almost the end of the year and many young people are getting ready to leave home. Financial preparedness is a key aspect of helping your child to get ready for adult life.
René Roux, general manager for client and intermediary engagement at Sanlam, recently witnessed her son ‘fly the nest’ to start his studies and she shares some of the critical financial conversations and lessons they shared before embarking on this new chapter together.
“This was the culmination of many conversations over the years. As a family, we always talked openly about money. We want our children to understand the value of money and while it is important, it is not everything.
“Before my son moved out, we had open discussions about some core concepts that are now important for him, including how to be a savvy grocery shopper and maximise the benefit of loyalty programmes.”
Conversations to have with your child
Here are some of the conversations Roux suggests having to help fledglings fly – whether they are moving out permanently or just having a practice run:
- Talk about money: Money talk is frequently taboo but Roux advocates for open conversations about money from an early age. “Children do what they see. They must understand money does not come from a machine. They must know it is the product of hard work and discipline. I was open about our household budget, savings and expenses early on. I would give practical examples, such as ‘If I have R100 and I need to pay for the bond, school fees, food, toys and keep some funds for a rainy day, this is what we have left.’ That way, my children could understand why we could not always afford something they wanted immediately.”
- Embed strong savings habits: Roux opened bank accounts for her boys when they turned six. She would show them their accounts and help them balance their income (pocket money), savings (gifts from grandparents, for example) and expenditure in a small savings book. “I wanted them to see, in a visceral way, that they could not spend more than they had. If they wanted something specific, they would need to save for it each month.” Later, Roux was also honest about her own sacrifices for her sons. “I would show them how I was putting aside money each month to make provision for their studies, so they would understand the importance of saving for the goals we were working toward together”.
- Explain the ‘8th Wonder of the World’: Roux also embedded the idea of compound interest early on. “I tried to explain to them what it meant, but to make it more practical, I showed them my savings balance and the jump in interest earnings every month to illustrate how you earn interest on interest over time. Seeing the physical example landed the concept”.
- Who pays for what? It is important to clarify financial roles and responsibilities once they fly the nest. What expenses are they responsible for? Will you continue to cover certain expenses and for how long? For example, you may agree to keep your child on family medical aid or car insurance until they reach a certain age.
- Think holistically: The obvious expenses when leaving the nest may be rent and groceries but it is also important to consider things holistically and factor in costs related to electricity, household cleaning products, laundry essentials, petrol, entertainment, stationary and more. Budgeting for all these aspects is critical because without keeping track and being prudent, it is easy to overspend and be left with too much “month” at the end of the money. Roux helped her son create a list of expenses with this in mind. In addition, she guided him to evaluate various options and their impact on his pocket, such as the cost of petrol to drive to university versus the rental of an apartment much closer to campus. In our lives, we will constantly face decisions like this.
Teach your child about spending, shopping and investing
- Show those receipts: In the beginning, Roux made it a monthly practice to go through her son’s receipts and bank statements with him to see what he spent his money on and why. “Last month, for example, my younger son withdrew R20 for ice cream. I explained that using his card would have been better to avoid paying withdrawal fees. It is important to seek these small ways to save and to understand all the fees involved.”
- Shop smart: A big lesson for Roux’s son has been the overwhelming task of grocery shopping for himself. “I tried to teach him to find small savings by thinking long-term, such as bulk buying non-perishables or freezable foods, meal prepping for the week and maximising his savings through loyalty programmes”.
- Invest in future success: Roux’s son took a gap year. During this time, he used the money he earned as a hockey coach to do a short course on online trading. This fuelled a fire in him and ultimately gave him direction for his future studies. “I was proud of him that he took cognisance of a core lesson we tried to instil as parents: to use your money to grow and invest in your future self.”
- Talk about debt: As a nation, South Africa struggles with debt. Roux suggests explaining the concept of credit early on and speaking openly about ‘good and bad’ debt, with practical examples. “Now that my son is older, also chat to him about building his credit history and credit score, so he understands how this works”.
- Build on the basics: The earlier a young person can start saving for the future, the better. A child is never too young to start. It is also important to consider medical aid, gap cover and income protection. Discussing these options is crucial.
“Every day presents a new opportunity to instil positive financial habits. Engage in tough conversations and take the first steps to set your young person up for a lifetime of financial confidence,” Roux says.