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How do you create an incentive in young children to start saving?

It’s simple. Rewards.

They’re begging for a hamster, but their savvy parents know that by just giving the hamster to them, it will most likely end up with mom or dad becoming the reluctant caretaker of the now-ignored pet.

Set up a list of chores or tasks that must be done regularly over a few weeks, like filling up the dog’s water, or clearing the dinner table, in order to earn money that will become “hamster savings”. Bonus points for taking the initiative and doing something new, unasked! Pretty soon you will find yourself staring into the twinkly eyes of the new pet, reflected in the shining eyes of its new owner. The seed of saving has been planted – why not get it going in the very month that South Africans celebrate Youth Day?

Then, what about that birthday money or Christmas cash? It could be divided into two types of savings: the Now-Now Piggy Bank, and the Big Stuff Piggy Bank.

The first piggy bank becomes storage for lesser amounts, those coins or smaller notes: it could go towards buying new stickers for a collection, or the cake-and-candy sale at school – a petty-cash repository.

The second piggy bank becomes one of two things: either to be used on a big-ticket item (new games for the tablet) or to be put away in a youth savings account at one of the traditional banks. Do your homework thoroughly on this option, though, because there are some undisclosed ‘rules’ even for kids’ savings accounts – like transactions taking place at least once a month to prevent the account from being closed or made dormant. The fees charged often outweigh the interest earned – a painful lesson for someone who thought their money would grow! Here’s a useful site that compares youth bank accounts.

How do you give older children a reason to continue investing?

It’s simple. Targets.

By the time your teenager has outgrown the lure of movie-linked merchandise on every surface of their bedroom, it’s time to look at earning money outside the home. Working at a DVD store, waitressing, lifeguarding, and babysitting are a means to earning more than when they were feeding the dogs every night. By now, that savings account might have a healthy balance, which will begin to look even healthier if it’s boosted by that pay packet every week.

At this point, you can illustrate the value of investing in unit trusts – if you haven’t already started one with the lovely cash gifts that came along when they were born! (If that never happened? Well, here’s where you could introduce a brand-new family tradition of giving investment money as birth gifts.) Point those teenagers towards stories about ordinary kids who became extraordinarily wealthy – like Warren Buffet – just by investing cleverly from an early age. Many young people have dreams of being entrepreneurs, but they simply don’t do anything about it other than stare in envy at publicity pics of the newest rich-guy-got-lucky. Becoming wealthy is a bit like fishing: if there’s no bait on your hook, there will be no fish landing at your feet. Consider action as bait!

If the reward system worked during their early years, they will latch onto having money targets fairly easily. However, if they – and you – are new to the idea of teenage investment, then creating a goal-oriented savings plan could be an interesting challenge on every level. Imagine having enough money for a deposit on that first car?

It’s time that South African investment companies and the big banks take a good look at attractive investment models for youth. Otherwise, a culture of being given handouts, or being handed everything on a plate, will persist into adulthood. And nobody wins in that game.

Sanlam Life Insurance is a licensed financial service provider.
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