Look after your children’s financial wellbeing by ensuring they understand these three basic money principles

Julie Brownlee, Fsp Invest, 25 Jun. 2015

Tags: money, basic money principles, money principles, educating children about money, financial education,

As your role as a parent, as well as teaching a whole host of different life skills, it’s vital you also educate your children about money.

To prepare them for adulthood, it is vital your children know how to be financially independent, the dangers of debt and how they can grow their money.

Here’s how you can do it…

Basic money principle #1: Money is not an entitlement

You need to teach your children that money isn’t an entitlement. It’s something they need to earn, Tom Dyson in The Palm Beach Daily explains.

Some children believe they deserve toys and other items. Some parent decide to give their children an allowance.

Doling out an allowance can create the wrong impression. Your children should learn from a young age that they need to earn their allowance. For example by washing the dishes, tidying their rooms or cleaning the bathroom.

Basic money principle #2: Understand debt

Your children need to understand debt and the dangers it can bring.

By depending on debt, they run the risk of debt creating financial strife for them. They should learn to avoid debt unless it enriches their financial future.

Once your children can understand basic maths, you can show how much debt costs by showing repayments and how much more this will cost them over the life of a loan.

Basic money principle #3: Understanding the power of compound interest

Compound interest is a powerful thing. Your children should understand how it works and the value of letting compound interest work.

If you have R100 in the bank earning 10% interest a year. At the end of year one you’ll have R110. During the second year, you earn interest on R110 instead of R100. During the third year, you earn interest on R121 instead of R110.

This is the power of compound interest and the most important aspect to it is time.

If your children understand compound interest, they’ll understand the importance of letting their money work for them over the long run.

So there you have it. Look after your children’s financial wellbeing by ensuring they understand these basic money principles.

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