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Lisa IllingworthBy Lisa Illingworth,  a  journalist working for Finweek magazine who specializes in entrepreneurship. When she is not writing frantically, she is a director for Origin School for Entrepreneurs in Johannesburg and a mother of two girls.

As South Africans we do not have a culture of saving as indicated by the Savings Institute of South Africa, 75% of household income is going towards paying off debt as our countries economic recovery from the 2008 crisis is taking longer than most other emerging market economies.

Teaching children financial literacy is not just about giving them an allowance once a week or every month and telling them to spend it wisely, it means teaching them about concepts like taxation, credit and different ways of saving. The excuse that parents often use is that “my child is too young to understand money” but the truth is, children from the ages of between 4 and 6 can be taught quite complicated financial lessons that can set a foundation for a healthy future. The idea below originated from David Kop, the Head of Member and Corporate Relations at the Financial Planning Institute of South Africa but I modified it slightly to include 3 different savings concepts but will teach your child about short, medium and long term savings.children saving

What you need:

A jar where you store all your small change
3 different money boxes of different colours or shapes
A picture chart or list of tasks they must perform eg. Make your bed; brush your teeth.

How it works:

The child needs to “earn” money for tasks that he or she performs daily.

This can be represented on a picture chart for children that cannot read and in a list for those that can. For older children, values can be added to each task to indicate their importance but for younger children it’s easier to make all tasks equal the same value.

The parent must stipulate at the outset of the project that whatever is earned in the week by performing these tasks must be divided up 3 ways and put into the 3 different money boxes. Money is given to the child from the spare change jar for each task performed.

3 x Money Boxes

1. One money box represents long term savings such as annuities and cannot be opened until it is full, one third of the weeks “earnings” is put in there and is not to be touched.

2. The second money box is allocated the second third of the weeks “earnings” and can be opened after 6 months to a year but is savings towards something specific. This represents medium term savings.

3. The third money box is for short term savings. My child uses her short term savings to take to school on shop day when the children are allowed to buy goodies from the tuck shop.

If there is an uneven number of coins or not enough, the long term and medium term money box must be allocated the earnings first before the short term box.

Children are excited to get involved in projects like this because it becomes a game and whilst having fun they are learning responsibility for tasks they need to perform, the value of money and are developing a culture of saving.

It is instilling in children not just a habit of spending like an allowance or pocket money does, but spending only what you earn and saving towards an item rather than using credit to fund a purchase. These are all valuable lessons that not only can they put your children in better financial positions in life but propel the country in the same direction.

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