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Every parent wants to give their children the best start in life, including opportunities they may not have had themselves. One of the most powerful ways to do this is by using pocket money to provide them with financial knowledge and resources that set them up for success. Wealth alone isn’t enough - it’s the money values you instil in them that will ensure your family's legacy lasts for generations to come.
Financial education: the key to generational wealth
A 20-year research project on 3,200 families by US-based wealth consultancy Williams Group shows that 70% of wealthy families lose their wealth by the second generation, and 90% by the third. True generational wealth isn’t just about passing down money; it’s about equipping your children with the financial wisdom to sustain and grow that wealth:
- Start early. Introduce essential money skills as soon as your child starts handling money.
- Encourage hands-on experience. Give children opportunities to manage money through pocket money or savings challenges, for example.
- Teach them the value of earning. Encourage entrepreneurial ventures like small businesses or paid chores to develop a strong work ethic and financial independence.
Teaching good money values through pocket money
One of the simplest ways to introduce children to smart financial habits is by using pocket money as a learning tool. Used effectively, it becomes a template for lifelong financial success. Here are some key lessons:
1. Understanding the value of money
When children manage their own money, they quickly learn that money is finite and that every purchase has a price. This teaches respect for the effort required to earn money and helps them become more mindful spenders. Letting them decide how to use their pocket money - whether to save, spend, or invest - builds essential decision-making skills and financial awareness.
2. Differentiating between wants and needs
Teaching children to distinguish between essential expenses (like stationery, toiletries and special school outings) and discretionary purchases (toys, gadgets, entertainment) is crucial. This distinction helps them prioritise spending and avoid impulsive decisions, setting them up for a lifetime of mindful money management. Without this understanding, it’s easy to fall into unnecessary debt later in life.
3. The importance of saving
Encouraging children to set savings goals instils the discipline of delayed gratification. When they see their savings grow over time and achieve their savings goals, they develop the confidence and patience needed for long-term financial security. These early saving habits help prevent reliance on debt to fund future purchases.
4. Budgeting and planning
A fixed allowance teaches children to allocate funds for different purposes, introducing them to the concept of budgeting. Learning how to distribute money for spending, saving, and giving fosters responsible financial habits and prepares them for managing real financial responsibilities in adulthood.
5. Understanding earning and work ethics
Linking pocket money to chores or small jobs teaches children that money is earned through effort and responsibility. This helps build a strong work ethic, reinforcing the value of hard work and financial independence. When children learn to connect work with reward, they develop an entrepreneurial mindset that will benefit them in the future.
6. Comparing prices and seeking value
Encouraging children to compare prices and assess the value of products before making a purchase develops their ability to make cost-effective choices. This skill not only helps them become smart shoppers but also equips them to make informed financial decisions as adults.
7. Learning from financial mistakes
Allowing children to make small financial mistakes provides valuable learning opportunities. If they splurge their pocket money on an impulse buy, they experience firsthand the consequences of poor money management. These early lessons help them develop resilience and prevent costly financial mistakes in adulthood.
8. Skill up
Encourage your children to learn more about money with educational books, YouTube channels, courses, interactive games and even age-appropriate apps.
Why not sign your teens and tweens up for Mad Money Skillz, a Truth About Money online short course that will teach them the basics of money management in a fun and interactive way.
Small steps build a legacy
Giving your children financial security means equipping them with the knowledge and skills to manage and grow their money. Without these lessons, even a substantial inheritance can be squandered within a few generations.
By proactively teaching financial literacy, smart money values, and the importance of responsible spending and investing, you’re not just securing their future - you’re building a lasting legacy of generational wealth. Start today, and give your children the financial advantages you may have not had access to, ensuring they stay ahead and continue to thrive for generations to come.
Truth About Money is an initiative created by 1Life Insurance to provide easy access to financial literacy for all South Africans. You do not need to be a 1Life Insurance policyholder to access the benefits. Learn more about the courses and services here!