This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial wellbeing.
This is according to Mayur Lodhia, Head of Retail Savings at Old Mutual, who adds that giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.
He points to the powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. “In November 1968, an Old Mutual customer made an initial deposit of R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.”
More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren, says Lodhia. “On special occasions like Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.”
If South Africa is to develop a generation of financially savvy adults, he says that it is crucial to not just talk about it, but actually practise good money habits. “It is important to teach your children about money, and the festive season – with the spirit of giving – is a good time of the year for parents to set a good example. Teach your children about the importance of giving within your means, as well as showing them the value of relaxing with family and rewinding after a long, hard year, while respecting the value of hard-earned money.”
Lodhia adds that families should consider starting a financial tradition of their own. “Set a reasonable budget for gift giving this festive season, and instead of spending all your money on gifts that are likely to fade, go missing or be forgotten, speak to your financial adviser about starting an investment in the name of your children.”
When children become old enough to understand more about money management, he encourages parents to involve them in the process. “Teach them the principle of compound interest and explain why putting money away today means they will have more money tomorrow. Help them set a budget for the money they’ll receive over the festive season, encouraging them to spend a smaller percentage today, and investing the rest for the future,” says Lodhia.
He lists various ways you can give a gift that keeps on giving long after the hype of the festive period has subsided:
1. Start saving for your children’s education: A hotly debated topic this year, the cost of education is something that needs to be saved towards and planned for. Opening an account and allocating money to it each month can help you fund your children’s future education.
2. Life-starter fund: Every parent dreams of having the power to provide their children with the necessities in life, but in reality, this isn’t always possible. Setting up an investment and adding to it each year, even just a small contribution of R500, will enable you to provide your children with a lump sum that they can use as a deposit for their first car or deposit on a house.
3. Set up a tax-free savings account for your children: A tax-free savings account can enable you to save towards your children’s long-term dreams and financial goals, but is also flexible enough to be accessed at any time should it be required. Also, by investing in a tax-free savings account, you won’t get taxed on the growth earned from the investment.
“It is never too late to start saving, but the sooner the better, so don’t delay and start today by speaking to a financial adviser. Saving and investing make wishes come true,” says Lodhia.