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Give your children a gift of real value this Christmas

09 December 2021 Old Mutual Unit Trusts

Christmas celebrations around the world are once again set to look different than in pre-Covid-19 times. In South Africa, a fourth wave of COVID-19 infections is being driven by the Omicron variant, which is raising concern. Whether it’s an intimate family lunch, a day of games and activities, or simply gathering around to open gifts, families across the country are pondering how to celebrate this significant day safely.

“Because Christmas may once again look different to previous years, it challenges us to remember the spirit and essence of the season, which is all about love and not the hyper-consumerism and overspending on gifts that we have made it about in the past,” says Pat Magadla, Senior Business Development Manager, Old Mutual Investment Group.

“Despite the disruption to ordinary programming, there’s an opportunity to use this year’s celebration to teach children the value of money by giving financial investments instead.”

“I think it’s important that as parents, we leverage the lessons that Covid-19 highlighted. The importance of health, time with loved ones and, of course, resilient finances that can withstand sustained pressure.” She adds that the pandemic reminded us of the need to have financial goals and reserves in the form of an emergency fund.

In Magadla’s view, Christmas-time gifting has taken a turn in recent years. The growing buzz of Black Friday and Cyber Monday in South Africa has made it easier for well-intentioned parents to give increasingly expensive gifts. “But now is the moment to teach children the value of generosity, the difference between saving and investing, and the skill of setting financial goals,” she says.

Teaching young one’s investment principles is more important than ever, says Magadla. “What better way to show your children that you care about their future than to give gifts of real value – gifts that will go the distance.”

To help parents foster a mindset of goalsetting and financial discipline in their children, Magadla offers these suggestions.

• Remember the reason for the season

It is worth emphasising that this time of the year is about love and generosity – neither of which need to be based on material things. Parents can help their children think about gifts, and by extension money, differently by placing a lesser focus on ‘stuff’.

Have frank conversations with your children about money and overspending and why this can be harmful; challenge each other to do activities and give gifts that are low on cost, but high on sentimental value, and find creative ways to celebrate the reason for the season. This is not overnight work and requires much effort and discipline, but the earlier parents start the sooner they will see positive change in their children’s thinking. The festive season presents an opportunity to teach children principles of planning by sharing the allocated budget for holiday expenses with them. This can even go as far as sharing the savings strategy that went into accumulating the December holiday “slush” fund.

• Link spiritual health with financial health

It is important that parents, and families more broadly, make the link between spiritual health and financial health. When finances are not in a good place, it can have a crippling effect on one’s mind and outlook on life, which is why it is important to help young minds connect the dots between healthy, disciplined habits and the plenty and varied rewards that come from them.

Because financial freedom empowers us to do more and help more people in need, parents can use teachable moments, such as charitable acts, to point out to their children that the healthier you are financially, the more you can help others in need.

• Future-focused thinking

Research shows that, when it comes to investing, time plays a bigger role in building wealth than the amount initially invested, thanks to the power of compound interest. Explaining how this principle works and encouraging your children to invest from a young age will help them to understand the benefits sooner rather than later, giving them the essential advantage of time.

A future-focused mindset values the long-term game and the benefit of sacrificing (i.e. investing) now to reap the rewards later. This is a fairly mature concept to understand, but you can make it child-friendly by helping your child set short-term, age-appropriate goals.

Once the goals are clear and the plan to achieve it is appropriately devised, you can open a unit trust in your child’s name.

“A unit trust is a cost-effective investment vehicle which allows the investor to invest in listed shares to grow their capital over time and keep up with inflation or (in some instances) outpace inflation,” says Magadla.

This might be a bit much for young minds to fully grasp, but as parents doing the guiding, it is something to keep in mind.

The road to financial freedom is not always easy, but a solid foundation of healthy habits from a young age makes a great difference, concludes Magadla.

Quick Polls

QUESTION

There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?

ANSWER

Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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