In Touch Newsletter - November 2013

Teaching children money management skills

teachingGood parenting is about more than simply providing for your child, it’s about setting the right example and demonstrating healthy behaviours. Children tend to look to those around them when learning about the world and how they fit into it. They are also more likely to establish their own behaviours by imitating what they see so whether you provide good or bad examples, you can be assured your children are forming habits - both good and bad - that will one day be an integral part of who they are.

Money management is one of the behaviours that are instilled from a very early age. Your children are developing their financial views by listening to your opinions and watching your behaviours with your own finances.How often do you say things like “Money is the root of all evil!”, “Money doesn't grow on trees!”, “It’ll have to wait until payday!”, and “Your allowance is burning a hole in your pocket!”?

These may be innocent remarks intended to curb overspending but they are negative and there is no meaningful lesson that a child can take from these statements. Rather focus on helping your children develop a healthy relationship with money by demonstrating and teaching them ways in which they can achieve their financial objectives (yes, that new PlayStation game is a financial objective for your 10 year old).

At what age should you start talking about money with your children? Erica Sandberg, national personal finance expert and author of Expecting Money provides money milestones for every age.


What you should know




Practice Waiting: At this age, children should be learning about patience, and how to respond when they don't get something they want right away. The simple lesson of delayed gratification will benefit them for the rest of their lives.

Tell your toddler that you'll give him/her a biscuit now if he/she wants it, but you'll give him/her two biscuits if he/she waits an extra ten minutes. See what he/she chooses and try to encourage him/her to wait for the extra biscuit.

Be patient and wait for a bigger payoff, rather than always going for instant gratification.


Go Over Counting: Your child won't understand the finances behind money at this age, but he should be good at counting and basic addition. So, this is the year to start linking those budding math skills to the concept of money.

Give your child a mix of coins and have him/her start by counting how many there are. Each week, introduce a new coin with its name ("this is 50c") and have him/her practise picking it out of a pile. Once he/she's learned the value of each coin, have him/her separate the pile into all of the different values, and keep growing the pile each week to escalate the challenge.

The names and sizes of each coin (plus math practise).


Associate "No" With Spending: Pre-school is when peer pressure starts to rear its ugly head, so stop the peer-inspired begging for stuff ("but Tommy has one!") before it even starts.

Tell your child that you can't buy everything you want, so you have to choose the items that are most important to you. The next time your child sees two things he/she wants at the store, make him/her choose just one. It can be just as hard for parents to say no as it is for children to hear it.

It costs money to buy things, so you can't always get everything you want.


Start Giving Allowance: This is the year of "make it work." Many experts advise starting children with an allowance around age six, which means that if they want something just for fun, it's up to them to save and figure out how they'll get it.

Start giving your child an allowance on a weekly basis. The exact amount will vary depending on your situation and personal history, but a rule of thumb is ten rand per year of age, so you might want to start your child with about R60 a month. Note that some experts say allowance shouldn't be tied to chores: It's a tool to teach your child about managing money, not to pay them for household duties they should be doing anyway.

If you want something, figure out how much it will cost and save up.


"What Do You Want to Be When You Grow Up?": This is about the age when teachers start to ask children what they want to be when they grow up. That makes this a good time to talk to your child about career and work. You should cover the fact that, though you go to work to earn money, if you're lucky, you also enjoy it. Try to instil positive feelings toward work and earning an income.

Ask your child what he/she wants to be someday, and have him/her draw a picture representing their dream job. Do this activity with them, sketching out a picture of you and your job (it doesn't need to be artistic). Explain what you do at work, why you chose that field and why you like it.

People work to make money, but they should try to choose their jobs based on what they enjoy.


Show What Household Things Cost: By this age, your child's understanding of addition and subtraction should be advanced enough that they can easily understand the broad concept of money coming in and going out. So, this is a good age to explain that, although you make money at work, you have to spend some of it on bills.

From now on, let your child sit next to you while you pay the bills. These numbers - especially your rent or bond - will be too big for her to thoroughly comprehend, but you can let them help you with some of the math operations to balance your budget, like subtracting your total expenses from your total income.

Adults have to pay bills, but that's not a problem as long as they earn more than they spend.


Open a Savings Account: By age 9, children are old enough (and self-possessed enough) to understand the concept of saving money for items they need and want. This is the right age not only to set up a savings account but also to include your child in the action so he feels ownership over it.

Open a savings account with about R100 and tell him/her you've done so. Don't let them withdraw money at will - if they want to save up for a big purchase like a bike, they should talk to you about it - but tell them that you'll take them to the bank to make deposits whenever they want. For every rand he/she contributes, consider offering to match it.

It's fun to save money!


Teach the Truth About Bank Cards: By the time your child is in a senior grade in primary school, they'll almost certainly hear people mention bank cards. Before they take in misinformation or bad habits from their peers, teach them constructive (and correct) information about the different kinds of cards and accounts people have.

Take all of your cards out of your wallet and go over which one is for debit, which is for credit, etc. Explain the differences between them. Then, when you're at the grocery store, let your child swipe your card for you. Point out what that means for your money: If it's a debit card, they’re deducting money from your checking account. If it's a credit card, you might want to say something like, "Swiping this equals borrowing money from the bank that gave it to me - if I don't pay it back on time, they'll charge me extra, but I always pay it back on time!"

How debit and credit cards work, and the importance of always paying back credit cards in full and on time.


Immunise Against Advertising: Senior primary is an era that's all about fitting in. At this age, children are getting a ton of messages from all over the place, all about how they should do or buy certain things to be "cool." Take this time to bring your child back to earth.

Go through a magazine together and point out how many different ads there are for different brands. Take guesses at how much those advertisers paid for those ads, and explain that they're trying to manipulate the emotions of consumers to get them to buy more. Even things that are trendy are often cool because advertisers paid to make them seem cool. Do the same thing whenever you watch TV.

Don't fall for the brand-name trap.


Demonstrate Wise Purchases: As children start to reach puberty, they should start preparing to make their own wise purchasing decisions. Plus, within a few years they'll start settling into more adult sizes, so they should start discerning when to go cheap and when to buy quality items - and how to identify that quality.

Take your child shopping. At the store, point out a cheaply-made object and a higher quality alternative. Explain how you tell the difference (the feel of fabric and cut; reputable brands, etc.) and when you choose the cheapest option or higher quality item. If you feel strongly about buying sustainable or eco-conscious products, explain what that means, how to identify those labels and why you're willing to sometimes spend more on them.

Price isn't always the determining factor in buying decisions - the key is to choose smart purchases rather than just the nicest or the cheapest.


Insurance and Investment: By now your child will recognise these words when they hear them, either on the news or at school. Too many adults feel a total lack of confidence around money, so get your child in the habit of asking for clarification on financial concepts they don't understand rather than simply nodding along. Start by making this hard topic accessible.

Tell your child, "I invest my money to help it grow; in the short term, there's the risk of losing money, but over the long-term it's one of the best ways to make the most of my money." Show them your latest portfolio statement so they can see that, although the numbers sometimes dip, they tend to rise over time.
Also discuss the fact that you want to make sure that your family is taken care of no matter what, and that you pay a monthly premium to ensure that (for example) you will receive an income in the event that you can no longer work, or that you pay a monthly premium so that family members can visit the doctor or dentist whenever they need to without having to have cash available.

How investment and insurance works, what they are and why people sacrifice money on a monthly basis to ensure future financial security.


Make Your Child Work: At this age, young teens start going out with their friends and spending money more independently than before. Allowance might no longer cover everything your child wants, so, if that's the case, make him work for it.

Whether it's by babysitting or mowing a neighbour’s lawn, let your child feel they own power to make money and the freedom that comes from making their own spending decisions with that money. Emphasise the point with specific examples of how everything you buy can be measured with time. For example, if your teen wants a R120 jersey, explain that they'd have to babysit for 12 hours at R10 per hour to afford it.

You have to work in order to get what you want... but if you do make money, you have a lot more options.


Give Your Child their ATM Card: If your child is responsible by nature, now's a good time to give them the ATM card for their savings account that you opened when they were 9. Put money into their account to furnish basic things like toiletries and then let them increase the balance with money they earn from weekend jobs.

Although you're a co-signer on the account, let them know that they'll suffer the consequences if they deplete the savings in the account before having bought the toiletries for the month. Sit down with them monthly to balance the account.

How to keep an eye on the bigger financial picture - and how to manage a checking account.


Finding Balance: The first three years in high school are pivotal. Teens tend to be incredibly busy: sports, extracurricular activities, community service projects. This is a good time for them to learn how not to lose their heads. After all, adults can also be overwhelmed by trying to balance work, outside projects and a personal life. And finances are often one of the first things to be pushed aside when you're under stress.

If you suspect your teen is becoming overwhelmed, set aside an afternoon to find a solution. Make some time to go over his/her activity schedule together. Figure out whether they can shift around any obligations, and whether their schedule is unhealthily busy. Talk about how to handles stress, and what to do to relax.

Everyone has limits, and you can push only so far. Money is great, but it's worthless if you're not leading a balanced life.


Explain Credit Ratings: Your teen may be getting ready to go to university or college, but even if he/she isn't, they'll need to understand the ideas behind credit. Go over this with them now, before the bad habits of their peers get ingrained in them.

Look up your credit report and score; it's a good exercise to show your kids the steps. Ensure they understand the importance of keeping your credit history clean by paying off every bill in full and on time. They'll need to develop good credit to eventually get loans for things they want, like a house or a car, and it takes many years to develop a good track record.

How to check your credit rating and why it’s important.


Decide on Student or General Loans: Before your teen heads off to university, college or into the working world, they need to fully understand how loans work – you may be borrowing money to fund their education now, but you’ll be paying interest on that money long after they’ve finished studying. Show them the impact of interest and the importance of paying account minimums.

Sit down together to go over student loans. Talk about whether you will be taking on this financial burden, and whether they’ll have to help. Both of you should understand the terms of any and all loans before signing them. For example, verify that they don't accept any student loans without comparing interest rates on loans. Together, come up with a solid plan for saving money while in university or college and repaying those loans afterward.
If you made provision in the form of an education policy, now is the time to show your young adult why financial planning is so important.

Student loans can be a huge burden, and the worst thing to do would be to bomb your credit rating in the process.

Contact me for more practical tips and ideas regarding money management skills for kids.

Source: Masthead


Can You Afford Not to Have an Income?

Can You Afford Not to Have an IncomeWhile it is true that there are a lot of things in this world that money cannot buy, the reality is that people cannot survive without enough income to sustain their daily needs. Food, clothing, shelter are some of the basic necessities that come with a price tag.

Those who are fortunate can afford to not work for a living probably because of a rich spouse, a huge inheritance, or a sufficient retirement benefit plan. Most people need income to support themselves and their loved ones. A lot of people depend on their salary from work, and in case of those self-employed, the profit that they earn from their own small business. That is why a stable income will lead to financial stability. In order to be financially secure income insurance is very important.

When you live with only one income and you are a parent, it is extremely difficult not to have enough income to provide for your family. In cases of serious illness or injury and if you are not able to go back to work, how will you then get money to sort out the financial worries at home? There are a lot of means to do so, but having income insurance is the best way to do it. Having insurance will prevent you from having potential debt problems.

When you stop working, it does not mean that the bills will stop coming. There are loans or mortgages to be paid, clearing of debts will still have to be made, water and electricity bills should be paid monthly, etc. How will you be able to pay for all these things when you have no means? Likewise, how would you be able to sustain your accustomed lifestyle? You have to pay when deadlines arrive because they do not go away when you are sick. In order to prevent the stress that comes with being unable to work, it might be wise for you to purchase income insurance.

Health conditions or injuries pose a setback when it comes to earning an income. You cannot predict when exactly you are going to acquire an ailment or meet an accident. That is why income insurance is a great means to somehow offset the financial needs when these events happen. It is also important when you still have a lot of years ahead before your retirement. Not being able to work for the rest of your life in cases of serious diseases, will be very burdensome not only physically, but also emotionally and financially. Some insurance plans offer coverage that would last for a short period of time while some policies have coverage which will cover you as long as you live.

The problem with not having an insurance to protect your income is that resources can be depleted in a short amount of time. Sometimes it would lead to bankruptcy or debt trouble until you are able to regain employment. Even if you have insurance for your car, or other properties, if you cannot afford to pay your monthly bills, you are going to be forced to sell them. Income protection insurance can cover your basic expenses because the insurance compensation is paid monthly.

With your present status, do you think you can afford not to have an income? If not, then please contact us.



Saving for your child’s education

Saving for your childs educationHaving sufficient funds to send your child to the school of your choice, allowing them to study at a university which they prefer or perhaps sending them overseas for their gap year, or even helping them fund their entrepreneurial venture, is high on every parent’s priority list. With proper financial planning this is achievable. Here are some practical tips on how to start planning for your child’s financial future in three easy steps.

Start the planning now

In an ideal world, parents should start planning for their child’s financial future at birth. But the reality is that this rarely happens as one has the expenses that come with a newborn and often these new parents postpone thinking about future education costs as they feel they still have a few years to spare. But as with any long-term savings goal, the earlier you start the better, as one gets into the habit of saving each month. In addition, the smaller and more manageable the monthly payments at the start of your financial plan, the easier it will be to reach your financial goal.

Let’s do the maths: For example, let’s say you want to save R100 000 for your child’s tertiary education, and we take into account an effective return of four percent without any inflation-linked increases. If you start saving in year one of your child’s life, you will have to save R319 per month to reach your end goal. If you only start saving in year six, you will have to save R491 per month to reach the R100 000 and if you only start saving in year 11, you will have to save R886 per month to reach the same end goal.

Estimate a goal savings amount

It can be tricky trying to gauge how much you need to save and for what, but it is possible to work out an estimate amount. Decide what you want to save for. If you want to save for your child’s schooling and tertiary education, get an estimate of what school fees are now at the school of your choice, and how much a four-year degree costs, and then work-out a ball-park figure. Enlist the help of your financial advisor who will determine how much you need to save to cover the education costs, taking inflation, possible returns and time available into account.

Let’s be realistic: You can only save what you can afford, and saving for your child’s entire academic career could be too expensive, so it is better to try and cover the tertiary education as this is generally the most expensive part.

Choose a suitable savings method

Most life assurance companies offer education type endowment policies. For these products, you make a monthly contribution for a specified period of time and you have limited access to these funds before the specified time has lapsed. The main benefit of this type of saving is that it is disciplined. At the end of the specified savings term the money will be paid over to you, so you can decide what to use the money for. If your child decides not to go to university, the money could allow your child to travel oversees or it could be used for a deposit on their first flat, or a contribution to start their own business.

Alternatively you can invest in a linked investment product (LISP). This is an investment plan that invests in unit trusts. You can make a once-off lump-sum payment or contribute monthly to this investment plan. For these two products, the money is invested in the chosen investment fund(s) and your money then grows with the return/growth that they earn within this underlying fund(s). Your financial advisor will guide you and help you decide on the best funds to select, based on your appetite for risk.

Let’s see another option: If you want to retain access to your funds when needed, you can deposit a portion of your monthly savings contribution into a good interest-bearing savings product, such as a money market fund account, with transactional capability linked to it. This savings account could be used for the short term expenses such as school fees, clothes, books, etc. And then the bulk of your monthly savings contribution could be invested in an educational policy to be used to cover the more expensive tertiary education.

For you as a parent, it is reassuring to know that you will have a ‘piggy bank’ of monies to assist your child in whatever they decide to do with their future. Start your financial planning now and meet with a financial advisor as soon as possible to work out a savings plan, based on your unique needs and circumstances and which will cover your child’s financial future.

Source: Sanlam


Feel free to contact us if your circumstances or needs have changed and your financial plan needs to be updated.

We look forward to hearing from you!

childs education


Contact Details

If you would like more information, or to arrange an appointment, please contact us:

Telephone: 031 717 2700

Fax: 031 717 2701

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Postal Address: PO Box 68, Kloof, 3640