The financial habits of young people are influenced by the people that they interact with, like their parents, grandparents, friends, and family.
“How we save, spend, and invest is greatly influenced by what we see modelled to us when we’re younger, and we in turn influence our children through the financial habits and decisions we demonstrate,” said Sumayya Davenhill, head of marketing at M&G Investments.
While they are still young, parents should try to demonstrate and impart as much of their own financial knowledge with their own children.
Here are three money lessons parents can share with their children:
Avoid overspending
Spending more money than you earn can land you in a debt trap that will eventually catch up with you.
Demonstrating financial security and responsible financial habits is one of the most important values that mothers can live by and pass on to their children.
You can avoid overspending by removing temptation and saying goodbye to your clothing store credit cards that have sky-high interest rates. By getting rid of your credit cards, you can save; if you can’t pay for something without credit, you need to save up until you can.
Save money for emergencies
An emergency fund can be handy if you lose your job or find yourself in a financial crisis, following an unexpected expense.
Davenhill said that an emergency fund is a must-have aspect of financial planning and it can be the difference between a tough patch and bankruptcy.
“Building up an emergency fund means having money that is easily accessible and should earn a return that keeps up with inflation,” she said.
According to Katlego Gaborone, a financial planner at Momentum, people need to have at least three months’ salary saved up in an emergency fund.
Don’t overthink investing
Investing does not require a degree in finance or a head for numbers; instead, people need a little common sense and commitment.
“Trying to find the best fund with the best returns to invest your hard-earned money in will only result in analysis paralysis. Instead of making a decision and taking action, you’ll be spending time and energy second-guessing yourself,” Davenhill said.
“Similarly, don’t be tempted to switch from your current investment fund to last year’s top performer because you think you’re missing out. Almost all funds will underperform at some point, and constantly switching from one fund to another may lock in losses for good.”
It is important to choose a reputable fund manager with a solid, long-term track record and select a fund that is aligned with your objectives, risk profile, and time horizon.
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