From a young age, young people observe the relationship and experiences that their parents and grandparents have with money, compliance officer at National Debt Advisers (NDA), Naledi Totana said.
These observations can influence the way that young people view and manage their finances without them realising it.
Financial planner at Alexander Forbes, Nelisiwe Mbara said the attitude that parents have about money certainly shapes the way that young people think about money.
“Teaching positive money behaviour from a young age helps to create a lifelong awareness of money-savvy attitudes and behaviour,” said Mbara.
According to Totana, recognising the “inherited” traits that hinder financial growth is key and it was never too late for young people to change those behaviours.
Here is what young people need to consider when it comes to financial habits that they have inherited:
Financial literacy
Totana said parents should ensure they take the time to teach their children basic financial concepts, such as saving, budgeting and credit.
“Before they can learn good financial habits, they first need to understand the value of money and why it should be handled with care,” Totana said.
If your parents never taught you this, make it your mission to read up as much as you can about it. The internet is full of good literature and social media offer vlogs of wisdom.
It is also important for parents to understand their finances and invest in safeguarding their future with things such as insurance and retirement savings so their children can be financially free of care-taking later in life.
Good financial habits
“Remember that your children not only listen to what you say, they see what you do. Therefore, if you want them to practice good money habits, you need to set the example,” Totana said.
Parents can do this by:
– allowing children to sit with them when they are drawing up a simple household budget;
– helping them identify the difference between a luxury (want) and a necessity (need) when grocery shopping; and
– showing them the importance of saving from an early age, through paying them a small allowance, giving them a piggy bank or opening a bank account for them.
The best thing you can do as a youngster if you don’t have financially literate parents is to learn from peers whose parents may be more financially literate - and who may be happy to mentor you.
YouTube and podcasts offer young people world renowned advisers freely imparting knowledge.
Difference between good and bad debt
Parents need to know the difference between good and bad debt so they can pass on this knowledge to the generations that follow.
James Williams, head of marketing at Wonga, said good debt allowed an individual to manage their finances more effectively, “to buy things they need or to handle unforeseen emergencies, or to acquire larger and more capital-intensive assets, such as property”.
Examples of good debt include taking out a bond for a home or investing in oneself by borrowing to further an education.
“A bad debt is a sum of money that has little or no prospect of being repaid timeously or puts too much financial stress on the borrower who is unable to repay it as they originally agreed,” Williams said.
“Bear in mind that whether debt can also be classified as ‘good’ or ‘bad’ is also down to affordability. Yes, a house is an investment, but if you cannot comfortably afford it, it might cause you severe financial stress,” Totana said.
If parents are in debt they need to recognise the problem and seek the help of a qualified debt counsellor, who can help them structure a debt repayment plan.
“There is no shame in this and taking ownership and responsibility for debt is also positive behaviour that you will model for your children,” said Totana.
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