The role of financial literacy in an economy should not be underestimated.
As former Associate Professor, Mark Graham of the UCT Graduate School of Business points out, the benefits of financial literacy are manifold, “from helping households manage their budget and savings to enabling entrepreneurs to embark on enterprise of value creation and economic growth”. .
Graham may have since retired, but his words still ring true. And where better to start than with the teenagers who will form the next generation of economically active adults?
Farzana Botha, Segment Solutions Manager at Sanlam Savings, says unfortunately some parents think conversations about money are for adults, leaving their children without a basic understanding of money management.
“Habits are formed as early as age seven, so it’s essential to start instilling basic financial concepts, such as planning, goal setting, needs versus wants, and appreciation. money and how to earn it,” she says.
With that in mind, Sanlam launched the savings jar app last year as a way to gamify financial literacy for young children.
Botha notes that this you teach your children that money should be age appropriate and aim to empower them while building their confidence and a healthy relationship with money.
Sanlam and other financial institutions offer tax-free savings accounts to which parents can start contributing on behalf of their children. Although the child’s tax allowance is used on his behalf in this transaction, the head start in investing this money cannot be ignored.
Duma Mxenge, Business Development Manager at Satrix Investments, points out that if you contribute R250 per month to a TFSA such as the Satrix Top 40 ETF for a 10 year old, your total contributions would be R36,000 and the interest they would earn just over R37,000, which would give your child a financial investment worth R73,400 at the age of 21.
Importantly, when it comes to earning tax, Mxenge says that as the parent or legal guardian of a minor child, you may be required to include any income from the minor on your own tax return.
“This applies whether the source of income is directly or indirectly received from the parent or legal guardian, such as pocket money,” he says. However, if your child receives income from their investment, they will be personally liable for tax on their income.
In this case, the parent or guardian would be responsible for registering the minor for tax – if the income exceeds the tax exemption threshold of R87,300 per year.
You will also need to complete a tax return if your child earns interest above the annual exempt amount of R23,800.
“When your child turns 18, the parent or guardian is no longer responsible for income and capital gains from investments made in their name, and the child will need to complete their own tax return,” he said.
Africa’s largest stock exchange, the JSE, holds an annual stock exchange Investment Challenge for 49 years, encouraging young people to learn first-hand how to invest.
Ralph Speirs, head of CSI at JSE, says nearly 190,000 learners have taken the program over the past 20 years.
“We have certainly seen an exponential increase in interest. In 2002, we had around 2,000 learners playing each year, and now we average 18,000 participants each year,” he says.
Speirs says that contrary to popular belief, you don’t need a lot of money to start investing in stock markets.
“We encourage a different narrative and we do this by fostering financial literacy within communities, starting with young people,” he says, adding that the JSE is happy to train teachers so they can encourage learners to rise to the challenge and learn how to invest. since childhood.
Botha provided the following advice to encourage children to save:
– Teach them how to budget. For example, if they receive an allowance of R100 per week, under the 50/20/30 rule, 50% of your income should be spent on your needs, 30% on your wants and 20% on your savings. Help them understand this and allocate their money each week. “If you notice they are overspending on their needs, or dipping into their savings, give them the option to only get R80, where you save R20 on their behalf.”
– Involve them in grocery shopping. This will help them understand the value of money at a much younger age.
– Give them the opportunity to win. There are non-negotiable chores, of course, but if they need the money to buy a birthday present for a friend and they haven’t budgeted for it, give them extra chores to earn money. It’s also important to hold them accountable – meaning they can’t receive the money if they haven’t completed the job. DM