Youth and money — how to save smart, spend smarter and dodge debt

Daily Maverick

4 days ago

Youth Month is a great time to be thinking about how to encourage your children to approach their finances at an early age, to instil good financial habits and reap the rewards of compound interest.
I was taken aback earlier this year when my almost-not-quite-18-year-old called me in a panic to ask me how to use an ATM to draw cash. 'I always just get cash from you, or swipe my card,' he pointed out. Oops. Sometimes it's easy to miss the small things when you're focused on stressing the bigger things (like saving).
Once that little hurdle had been addressed and he got the hang of budgeting each week, he came to me with a request to set up a savings system using his own money. He had a lump sum of R5,000 to start off with – money he earned working a holiday job.
Some of you may think it's overkill, but I kicked him off with a retirement fund annuity, in an aggressively positioned unit trust fund. The amount is R500 a month and he started a few months shy of 18.
'Keep putting in R500 a month for the rest of your life, forget about it and only look at it again when you are 10 years away from retirement (or 55),' I told him. I'm sure when he starts earning one day, he will contribute more (I hope) to his retirement savings, but if I kick the bucket tomorrow, at least he has started his financial journey on the right foot.
Students battle debt
Sadly, a survey by Old Mutual in partnership with South Africa's TVET colleges shows that many students are battling to repay their debt, with 14% skipping classes due to financial difficulty. This highlights the dire need for intervention, says Old Mutual's head of financial education, John Manyike.
Although most students (72%) are confident in their ability to manage their finances, the overwhelming majority (78%) don't know how to budget properly. This is one of the core findings of a survey conducted by Old Mutual among 727 students between the ages of 18 and 25 at Technical and Vocational Education and Training (TVET) colleges across the country as part of its Financial Wellbeing Programme.
The survey found that 52% of students confirmed that they have a budget, but don't always stick to it, while a further 25.7% admitted that they don't have time to budget. Only 22% of respondents managed to both have a budget and stick to it.
'The survey findings show that there is a marked discrepancy between students' perception and reality,' comments Manyike. 'While most students feel they are in control of their money, the fact that the majority of them don't budget properly would indicate otherwise.'
Another key standout from the survey is that 11% of a smaller sample group of 249 students have some kind of debt, with 20% indicating that they are not coping with their debt. More than 14% of those surveyed said they sometimes or often missed classes due to financial difficulty.
Fikile Mbhokota, CEO, and Kingsley Williams, chief investment officer at Satrix were kind enough to share their own hard-won financial lessons for today's young people to take note of.
You don't need thousands to begin. Starting with even a small amount can help build the habit of investing early and develop the mindset to see money as a tool for growth, not just spending.
This is the time to learn how to live within your means, avoid debt and get creative about saving.
Inflation may seem abstract in school textbooks, but in reality its impact is immediate, silently reducing what your money can buy over time. This is why investing early, even in small amounts, helps keep your money growing ahead of inflation.
Automating your savings makes consistency easier. Treating investment contributions like a fixed monthly cost helps eliminate the temptation to skip them, even when money feels tight.
Your two cents on credit cards
Money Cents reader Steven said: 'I was taught at 18 (when I got my first credit card with an enormous R500 limit) that credit is a massively powerful tool which must be used sensibly.
'My parents taught me that instead of leaving my monthly salary in an ordinary current account, I could rather stash it away in a short-notice investment account where it earns interest. All of my spending – and I mean all of it – could go onto my credit card.
Their trick was to always pay the full balance back by the due date to avoid the bank charging interest. So, my money was secured, earning good interest, while I was 'spending the bank's money', earning great rewards and not paying a cent of interest.
'The problem comes in where I have to rein myself in when spending, keeping mental notes (courtesy of 'available balance' SMSes from my bank) of how far into my credit limit I'd gone, so that I could afford to pay the full balance back each month. It also takes some planning to ensure the money is withdrawn from my investment account on time each month.
'I'm now 33 and have used this method since receiving my first credit card. I have never missed a payment and have never been charged interest by the bank.' DM