Whether they’re off to university or their first job, we asked money expert, Jacqui Pile for her best tips on teaching kids financial independence.
We’re naturally protective of our children, but when it comes to money, giving them the opportunity to make mistakes while the stakes are still relatively low is one of the greatest gifts you can give. So don’t rush to bail them out if they spend all of their student loan, because this will just teach them to come back for more.
Here are a few ways to teach your kids financial independence:
But be clear about how much and when. For example, you may give them a set allowance or pay their cellphone contract.
It’s good to talk
But don’t lecture. Best of all, set the right example, because children copy attitudes.
Share your secrets
Not all of them, naturally, but make money less taboo as a subject, because you’ll want them to come to you if they get themselves into financial trouble.
Kids staying at home?
There’s no place like home for school-leavers to cut costs while they’re going to local universities, or doing work experience.
Make them pay something, even if it’s a small amount, or they can do agreed-upon household chores. Don’t make it too easy – if you pay for their cell phone, travel, clothes and food, and give them an allowance, there is no incentive to get any job. Work experience or internships give them a chance to prove themselves, and they should at least be paid for their expenses. Many firms hire new staff based on referrals, as they get a known person, and it saves on recruitment fees. So tap into your network.
If you work for yourself and they have nothing on the horizon, employ them. They’ll pay a lot less tax than you, and it means they can afford to pay their own way.
Get them to open a retirement annuity – they can start with as little as R150 per month, and it will get them into the habit of saving.
When to give a helping hand
Accept that it’s time to back off, but there are occasions when it’s okay to help. If the student loan hasn’t come through, or they need a deposit for accommodation, step in if you can.
Insurance is vital, but students might want to spend the money on other things, even though their belongings are at greater risk of theft, particularly their cell phones and laptops. Make sure they have cover (even if you pay for it), as it’ll be more expensive replacing their gadgets.
If you sign surety on your child’s loan, you may need to cover the interest, which has to be paid while your child is still studying. On a loan of R30 000, at an interest rate of 11,75% (prime plus 2,5%), you’ll pay R294 interest monthly.
Buying your child a reliable second-hand car will ensure they can get to university classes or a part-time job, which will be easier to take on if they have their own transport. You’ll be able to access car finance at cheaper rates, as you can offer security against other assets, such as your home, so it’s better to have the car in your name – but make sure your child is listed as the primary driver on any insurance policies. It doesn’t have to be the flashiest set of wheels – a good second-hand car that’s safe is all they need until they’ve saved to buy their own vehicle, after they’ve finished studying and landed a stable job.
Most student loans will not pay for accommodation if kids are living at home. If they’re in digs, help them to draw up a budget and manage their spending, so they don’t have to borrow to cover day-today expenses, and end up with a personal loan to pay off when they graduate, too. Help them start out by funding the basics such as a duvet, kettle, and so on, and covering cash for the first few weeks. If you’re paying, help them set limits: second-hand items or things from home are fine.
Get them used to managing debt with a credit card with a low monthly limit. Make sure they understand how a bad credit rating is incurred, and its impact: they’ll find it hard to rent a flat, get a car loan, or borrow money. If they get into trouble, make an agreement to cover their minimum payments, as long as they also make payments to clear what they owe.
Which student bank account to pick?
The ‘Big Four’ banks offer student accounts with much lower fees than you’d pay using a normal cheque or current account. There might not be any monthly fees, but, if there are, they’ll only cost up to R24,50 per month. You need to be studying at an accredited tertiary institution, as well as meet the specific age criteria, to qualify for these accounts. Go to wheretobank.co.za to compare their offers. Best buys include:
It has no monthly fee, and you get five free electronic transactions and five free ATM withdrawals a month. A small fee per transaction applies after.
It doesn’t have an age-criteria, so if you’re a mature student, it’s worth getting.
It has a monthly fee of R16,50, and offers free access to the Personal Money Manager online-budgeting tool for Internet-banking users, so you can track income, expenditure and fees on your account.
It allows you to redirect banking fees to another FNB account, so you can help your child save a little extra.
When you shouldn’t shell out
Full-time study at a tertiary institution in SA can cost up to R80 000 a year in tuition fees alone. A study by the University of California found that larger contributions from parents toward their children’s education was actually linked to lower grades among students. Students whose educational costs are paid for entirely by their parents often engage in more leisure activities – they tend to party more than they study! Give them an incentive to do well, by encouraging them get a casual job to pay their monthly student loan fee (or a big portion of it, at least).
Don’t pay for luxuries
Their clothing, holidays, phone bill, and nights out should be for their own account. Getting a job to cover these is good practice for life after studying. If they’re paying for these, and their loan, you could consider helping them fund the basics – water, food, electricity – so that they’re not overwhelmed financially.
Insurance is vital
Make sure they have cover, as it’ll be more expensive replacing their phones and laptops.