Money Matters: The difficult financial conversations to have with your kids
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This month, South Africa will join the world in celebrating International Children's Day to symbolise and reflect on the progress being made towards the realisation and promotion of rights of children. The Coronavirus pandemic has caused heightened levels of anxiety amongst parents enduring reduced job security and lack of income. With our careers – and therefore our finances – under threat, it’s understandable that anxiety around these problems could trickle down to our children.
About a quarter of all children who have had to cope with recent Covid-19 lockdowns – involving school and university closures and social restrictions – say they are dealing with feelings of anxiety, with many at risk of lasting psychological distress, including depression, according to a recent multi-country survey conducted by global human rights NGO, Save the Children. Meanwhile, 65 percent of the surveyed children struggled not only with boredom, but feelings of isolation.
“This is why it’s so important that we do our utmost to connect with our kids during this challenging time,” said Liberty Investment Specialist, Sindi Mondi. “Our children should be part of important conversations, including financial conversations, and even though these talks are difficult, they can be reassuring and help manage expectations. Being open, honest and caring is paramount. At Liberty we believe that children have the right to be empowered, and investing in their future, gives them a steady start in their own journey of financial freedom,” she said.
A loss of income for your family
With millions of South Africans potentially facing retrenchment or reduced work hours, a loss of monthly income is happening to families across the economic spectrum.
“Families are going to have to budget to make ends meet, they’ll be tightening their belts and putting a pause on some of their luxuries, which is why you have to be very clear in explaining the situation to your children,” said Mondi.
“You have to explain this isn’t a punishment, just the current – temporary – reality, and try to come to an understanding together,” she said.
Making the concept of money more tangible
Mondi recommends that having conversations about how money is a finite resource – particularly for younger children – can help them understand why you might be budgeting. “Show them what you spend on groceries, essentials and utilities like water and electricity. It makes them realise the value of certain things,” she said.
This could potentially lead to other conversations about saving for the things they want, and about setting financial goals even from a young age.
“It’s also about being a role model for your kids. If you have a restrictive budget because of a lower income stream and then spend on luxuries that you could do without, you end up sending the wrong message. We all have to try and avoid the impulses for instant gratification,” she said.
Setting long-term, medium-term and short-term goals
As children become teenagers and young adults, ensuring they are setting financial, educational and career goals becomes increasingly important, especially with the uncertainty that goes hand-in-hand with a pandemic.
“Even though we may be in a financially precarious situation now, having medium and long-term goals doesn’t have to change. The role of us as parents is to financially empower our kids – make sure they understand why spending habits have to change in a lockdown, for example – but also to prepare them for the future,” said Mondi.
Making sure children are on the road to becoming financially literate is integral, and advising them on how to save their money, rather than spend it on short-term wants, means having the conversations about their futures, often. But it’s also about asking the right questions.
“Do you share ideas with your children about where you see them in the future and how they can get there? When they start earning money, are they still going to be putting it towards owning a home, education, even travel? Do they know that they should always be saving for something bigger, better?” she said.
“But it shouldn’t just have to be the parents educating their children. Financial advisers exist for a reason. They can coach you and your children on your finances every step of the way,” she added.
The worst-case scenario
While no one enjoys talking about death, the pandemic has shown just how vulnerable we all are to opportunistic diseases.
“If your children are old enough to understand the concept of death, they may be worried about their own lives and yours, which is why they need to know what you’ve done to protect them,” said Mondi. Making sure that they’re aware of their insurance cover, or simply that they have access to quality medical care, is important. But equally important is letting them know whether their parents have funeral plans, life insurance or savings that can support them should anything happen.
Having cover for their education is also a great step towards investing in their future, especially if you are no longer there. Speaking to your kids about their future ambitions opens the door to having real conversations about what financial protection needs to be in place to ensure their journey towards achieving their ambitions is not derailed by the lack of financial capital.
“Conversations like these can be helpful for parents as well because it leads to introspection about their own plans and policies. You might realise where the gaps in your cover are, and help you realise if you need advice on how to fill them,” said Mondi.
Talking about your finances and the future can be difficult even among adults but being direct and open with your children can spare them further anxiety, even in the worst-case scenario.
“It doesn’t have to be all doom and gloom but making sure your children know that you’re helping them prepare for the future can help ease the tension that comes with a pandemic. No one was ready for Covid , but by normalising these kinds of conversations, you can help your kids feel more prepared,” she said.
"We always teach our children that money does not grow on trees. Let's be kids for once and imagine that it did, then we ought to know that even trees go through seasons. Covid -19 and the lockdown restrictions was one of the worst seasons that families have experienced. We need to be prepared for the next seasons,' concludes Mondi.