Teaching children about money: tooth fairies and money monsters

A conversation with a work colleague about how we motivate our children to try their best at school got me thinking: have I transformed into Money Monster Mom? I have been offering my boys financial rewards in exchange for demonstrating a good work ethic. At the same time, I’m hoping to help them get a feel for the value of money. Here’s a little story that sums up my approach. Let me know what you think and how you handle school performance, pocket money and personal finance discussions at home in general. You can hit the comment button on my website or send me an email. JC

My eight-year-old son has got more cash than I have. Notes are bulging out of the tin he has standing on his bedside table. It won’t be long before he will be able to swap his savings for the computer he has been eyeing.

Timothy doesn’t get pocket money. Not one pence.

He has earned several hundred pounds by getting 100% for spelling and multiplication tests and scoring goals in Saturday football matches. A few visits from the Tooth Fairy have added to the coins anchoring his tin.

He doesn’t receive any money for scoring 99% and below. After all, if you can learn it and it is not rocket science, you should get 100%, is my reasoning to him.

The Tooth Fairy pays Timothy good money for teeth that are in good condition.

Toothless Timothy: Rich rewards in his slipper.

Another way Timothy has bolstered his earnings is by lending me money when I am short of change in the morning to pay for his school lunches. I insist on paying back with interest – and I make the surplus a hefty, loan shark-style amount.

The longer it takes to repay Timothy, the more interest he gets from me. So, he is always eager to lend me a few coins. And he is always quick to ask for the “interest”.

Timothy doesn’t know yet that when he is older and asks to borrow money, I shall do the same – insist on repayment with a large dollop of interest. This is not because I want to make easy money off him but because I want him to understand from early on that debt, particularly short-term debt, is very expensive.

For now, I want him to feel the joy that money-lenders experience when they rake in the extra cash. Later, I want him to understand how quickly borrowers lose money and that it feels awful when the fruits of your hard work are wiped out by paying big interest.

In short, I want Timothy to keep away from the many micro-lenders of this world who tempt young people with easy finance deals through fun advertising on TV and the internet.

By now, you are quite possibly gasping with horror at my parenting style. And certainly I do wonder – regularly – whether I am doing the right thing.

But I am on a path now. And Timothy is on this path.

He is absolutely loving seeing his wad of notes grow bigger and pondering what he will be able to buy for them. I am liking the idea that I might be kindling an entrepreneurial spirit in my son and giving him a feel of the value of money.

You will probably be delighted to know that I have drawn the line at charging Timothy rent or getting him to pay for his clothing or other recreational activities. His money is his own.

A side-effect of this financial motivation is that Timothy has become incredibly ambitious at school, quickly clawing his way up the maths ability groups. His teacher has no idea why he is moving so fast.

Timothy voluntarily practises little sums every day in the morning after breakfast and times himself. What took him 20 minutes two weeks ago he is now completing in 15.

He actually says he enjoys the number work. Just the other day he asked me what kinds of jobs were available for people with maths. After all, he will need to do something after he has retired from his professional football career.

My sweet little chap came home last week with a special award given to him in front of the entire school. He didn’t understand what it was for.

The certificate noted that he was “taking responsibility for his learning and being an excellent role model”. So, I explained what that meant – and rewarded him with a particularly large cash bonus. Well, large for an eight-year-old.

Am I giving him the right idea about personal finance or have I become Money Monster Mom by linking success in school work with pocket money? Time will tell.

In the meantime, I have noticed that a new report compiled by child psychologists on how to introduce young children to basic money concepts has been released in the UK. You may be relieved to hear that I’ve got it on my list of weekend reading.

However, the research findings may have come too late for Timothy.  According to Kirsty Bowman-Vaughan, an expert on young people and money at the Money Advice Service: “We know a child’s money habits are formed very early in childhood – they are usually set by the age of seven.”

I wonder what Tiger Mom would make of my early wealth building lessons for Timothy. I suspect she would purr with delight.

* This article was first published on global investment and money news website BizNews.com.

What your bank manager knows, but won’t tell you, about credit cards

I’m a bit sceptical about whether engaging on Twitter is worth the time that goes into building a base of followers and tracking what everyone is saying. Occasionally, though, Twitter has great value as a tool for making contact with potential news sources and building new contacts.

Recently, I interviewed two people I reconnected with through  Twitter for a magazine article on the rules of social media etiquette (that piece is available in the “Recently published” section of my blog). And, last week, I was able to use great information tweeted to me by my newest Twitter friend, Thulani Shabalala of KZN, in a column for Biznewz.com (see below).

Thulani (@Thulani12) was very generous in sharing information about how he uses his credit card so that he makes money out of it, rather than giving the bank the opportunity to generate huge amounts of interest on his back. Thulani’s tips reminded me of advice I received from the editor who gave me my break in financial journalism as assistant editor of South Africa’s first consumer finance magazine, Personal Finance.

That editor’s name is Bruce Cameron. He’s not related to me, though we do have lots in common, starting with our love of investigative journalism.

I learnt a lot in my 18 months working with Bruce – not least of all how to put a high quality consumer magazine together from scratch and then get it distributed to relevant audiences around a country. Bruce also gave me great insights into money management and investing, as you will see in this column.

Top credit card tips: Lessons at the foot of the Personal Finance master

by Jackie Cameron on October 25, 2013 in Thought Leaders

My new Twitter buddy, I have discovered, has smart money moves like the editor who first hired me as a personal finance journalist: he plays very clever games with credit cards. For more on the details about how these two maximise their salaries and keep short-term debt to a minimum, scroll down.First, though, let me introduce Thulani Shabalala (@Thulani12), who caught my eye on Twitter because his profile revealed we have some similarities: like me he is a social golfer with a 36 handicap – and not ashamed to admit it!  He is also interested in investing and personal finance issues.Thulani and I agreed to have a (slow) game of golf some time when we’re in the same city. In the meantime, he was very quick to offer some money advice when I put out a tweet asking for contributions for a follow-up to this piece: Five of the best money tips I’ve ever heard, some in strangest of places.Thanks for the excellent credit card suggestions, Thulani. I’ve added them to the list. – JC

 By Jackie Cameron

On my first day of work as a personal finance journalist some years back, my editor asked me

Thulani Shabalala

which credit card I had.

I was quite pleased to announce that I, in fact, didn’t have a credit card and preferred to live within my means and generally tried not to exceed the bounds of a current account overdraft facility.

He, on the other hand, was visibly appalled. You can’t be a personal finance journalist and not have a credit card, he admonished, no doubt wondering why he hadn’t asked me this question in the interview.

My editor immediately put through a call to his personal banker, who arrived later that day armed with application forms. And, shortly after that, a credit card with an enormous facility – far more than I could repay with at least three salary cheques – arrived.

It must be said: few people can move bank managers from their seats and into an office as fast as that particular editor could. Now retired, he was the ultimate news hound, getting his teeth into the proverbial jugular of anyone who wasn’t squarely on the side of the consumer in his columns.

So, don’t expect to find it as easy as I did to sign up for my first credit card. Or to be granted such an enormous credit facility. I have no doubt the bank’s generosity was linked to the public might of my former boss (yes, we share the same surname; no, he’s not related).

But do aim to get a credit card as soon as you can. You don’t have to use it; but you will find it a much cheaper form of debt, unless you’re borrowing, for free, from a friend or family member.

Signing up for that shiny piece of plastic wasn’t the end of my credit card discussions in the editor’s office. I was tasked with figuring out how to use the thing in a way that maximised my personal finances – and then writing about it so that others could benefit from my experiences.

I will always be grateful to that editor for introducing me to credit cards.

Please remember this: a credit card is a wonderful tool if you manage it the right way. But if you make a mistake, it can be very costly.

There is a dark side to a credit card and that is the budget facility. Never use it if you can possibly help it.

If you owe money through your budget facility, start clearing this as soon as you can. The interest rate is nasty and the instalments will wear you down.

If you don’t keep up with your repayments, you can easily generate a poor credit history. That, in turn, will mean the bank manager is likely to show you the door next time you ask for a loan, for example if you want to buy property or a car.

On the other hand, consider emulating my Twitter friend Thulani Shabalala (@Thulani12), who believes in maximising income by temporarily placing the bulk of it in an interest-bearing account, or in your home loan to reduce interest.

Then use your credit card for most of your spending before repaying your credit card in full by the “payment due” date. Don’t go wild on the shopping though; stick to a budget as you would if you were using cash, taking care not to spend more than you earn.

Thulani says you should only be using up to the equivalent of your “disposable money” on your credit card, and says this is money after fixed costs like bond and car instalments.

He juggles his cash in a way that he does not get hit by interest.

“Most credit cards have the 55-day interest free period, or roughly 25 days from the close of cycle). I delay the credit card payment until about three days before the end of the interest free period,” he says.

“The goal is to not use more than 90% of the daily account limit. My spending fluctuates monthly.”

Thulani has a second credit card, which he only uses in emergencies. After he has used that card, he aims to pay that debt off quickly –  in less than three months. He reduces his spending on his regular credit card for his disposable income in order to “settle the emergency card to avoid paying too much interest”.

Shop around for credit cards with low debit interest rates and no annual fees. “Here in South Africa, I personally think the Virgin Money credit card fits these requirements,” adds Thulani.

Write to jackiecameron.uk@gmail.com

Related articles

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Your best money tips, please

Hello all. I’ve got a favour to ask. I’m working on a follow-up to this personal finance piece (see below), published last month on Biznewz.com, and would greatly appreciate hearing your money management tips. I’m looking for fun, unusual and real life dos and don’ts we can all use. Please mail me yours, as soon as you can. Just a line or a quick pointer would be greatly appreciated.

Have a great weekend.

Jackie

5 of the best money tips I’ve ever heard, some in strangest of places

The turning point in my personal financial management didn’t come as a result of an accounting course I took to brush up on my number-crunching skills. Or because of any detailed discussions with financial intermediaries or bank managers in my early years of work.

No, my first and most lasting personal finance lesson was delivered to me in an unmarked police car when I was a crime reporter. The tutor was a detective with a handgun strapped to each of his calves, another tucked into the back of his trousers and who knows where else.

It was about 2am in the morning. We were watching dozens of cops in bullet-proof vests quietly scouring a Hillbrow, Johannesburg street, some slipping into the stairwells of dilapidated apartment blocks, as an anti-drugs police operation kicked into gear.

It was a very exciting event, particularly later when residents accused of being drug dealers were forced out of their slumber, ordered to make themselves decent and frog-marched to armoured vans. The odd gunshot or two punctuated the air, but that’s what you’d expect on any night of the week in Hillbrow.

It was in the slow, quiet build up to the manoeuvre that this policeman shared his tips on how to grow a portfolio of assets out of a limited income. He told me how he managed his own saving and investing strategy.

I won’t go into the full details now, but the main take-aways were these: he had developed a portfolio of residential properties by maintaining a good credit rating, saving deposits and then borrowing money from a bank to fund the balance of his purchases. He had picked his properties with great care in order to secure reliable tenants.

He didn’t buy properties without secure parking, for example, because the most valuable possession a tenant is likely to own is a car, was his thinking. Go for relatively low-maintenance properties and make absolutely sure that the rentals in the area are in line with what you will need to fund the mortgage, was another point he made.

He didn’t sell properties, either. His main aim was develop a passive income stream net of costs.

By getting started as soon as possible after working, he had achieved just that by his early 30s. Just goes to show: you don’t need to be corrupt to build assets as a policeman.

Another person who has given me sound money advice has been my mother-in-law. A bit scatty (in the nicest possible way), and best known for her philosophical thoughts on religious matters, she once offered this pearl: if you possibly can, try to live off one salary before you have children.

This way you can save a lump sum to fund a decent investment later or cater for a period in your life when cash proves to be a bit tight. And, because you are used to living off half of what you earn, it won’t come as a shock when you really do need to be clever with a limited income.

Now, I must confess, although these are some of the best money tips I’ve ever heard, I’ve had some of the lessons reinforced the hard way. For example, I haven’t always bought property with secure parking – and that has generally not been to my advantage.

However, while I am not known for listening attentively to my mother-in-law at the best of times, I have paid heed to that little nugget. It really is amazing how much you can save in a relatively short period if you consistently hive off half your income.

Five great money tips

1. Do whatever it takes to maintain your good reputation for repaying loans and accounts. With a good credit record, it is easier to borrow money from a bank for big asset purchases.
2. Buy property as soon as you can. It is an asset class that can help ordinary salary earners grow their wealth. But it takes time, so you do need to start early.
3. Don’t just buy any property. Research the area, particularly average rentals, so that you can increase your chances of your bond repayments being covered by a tenant.
4. Never buy a property without secure parking. In South Africa, keeping your car safe is more important than a nice garden or a good view.
5. Before you have children, try to live off one salary and save the other. This way you’ll build a nest egg that you can put to good use later – for example, to use as a cash deposit to fund a property purchase – and you can get used to managing your money on a tight budget.

Property: Should you rent or buy?

English: An icon from the Crystal icon theme. Nederlands: Een icoontje van het Crystal icon thema (Photo credit: Wikipedia)

For some time, property was the most exciting asset you could buy. But that was when house prices increased dramatically each year.

Is buying always the best option?

No. Only buy if you are confident you will not sell sooner than at least five, but preferably seven, years. It takes time for a property’s value to grow to the extent that it covers the extra costs associated with buying and selling – and gives you some profit to help you put down a deposit on your next home.

Apart from the bricks-and-mortar, expect to pay for costs like transfer duty to the government, the usual bills associated with moving, commission to an estate agent and possibly, tax.

Is renting just subsidising someone else’s path to wealth?

Yes, it is. When you pay rent, you are paying off an asset that will eventually be owned by someone else and generate a steady income for that person. But the flip side of this argument is: your rent will be lower than home loan (mortgage) repayments; you may need the extra cash for other spending, like getting your own business going. Another plus factor of renting is that your landlord pays for maintenance, insurance and other costs associated with homeownership.

Is it better to rent and invest money in shares instead?

Only if you have the discipline to invest the money you are saving by renting rather than buying. Plus, you need to know what you are doing on the stock market so you can generate a consistently high return.

It generally requires more skill and expertise to make good money on the stock market than it does through buying and selling real estate. History has shown that property and shares should produce similar returns that are better than you can expect to enjoy from other asset classes in the long run, so you won’t lose out if you opt for property instead of shares.

There is another, better reason to opt for property: you can borrow money to buy property, but you generally can’t borrow to buy shares.

Should you be working towards your own property?

Yes. For most people, rent or a home loan is the biggest monthly expense. Over time, this home loan repayment reduces to below what you’d pay in the form of a monthly market-related rental. If you can wipe out this bill, you will free up loads of extra cash for other spending and saving elsewhere.

In addition, every cent you spend on the property is going into your asset, not someone else’s, and no one except you can decide whether to move. Landlords can often give tenants nasty surprises, like notice because they have decided to sell.

When is renting preferable?

Renting is usually a better bet if your job is not secure or if you’re expecting big personal changes, like a marriage, divorce or more children. It’s always quicker and cheaper to move from a rented home than one you own.

By Jackie Cameron. This article was first published in Fairlady magazine. Jackie Cameron is a freelance business and financial journalist, who lives in Scotland. She is the author of personal finance books, including one on property, and award-winning former editor of South African property news site Realestateweb.co.za (Moneyweb Holdings).

Write to Jackie Cameron: jackiecameron.uk@gmail.com

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5 ways to beat your bank at its own game

Photo of a RBC Visa taken under a UV light to show the florescent Visa Bird. (Photo credit: Wikipedia)

Ways to work your credit card, so you win – not the bank. 5 tips.

Your credit card can make or break your financial well-being. If you take on too much debt, you won’t have capacity to borrow money for important stuff like buying a home.

And, if you don’t keep up with your repayments, you can easily generate a poor credit history. That, in turn, will mean the bank manager is likely to show you the door next time you ask for a loan, rather than enthusiastically writing you a cheque.

Easier said than done, you may think, as your statement arrives in the post, showing a never-ending stream of purchases, and a budget facility that seems to chew through an ever-increasing amount of your salary.

The bad news is that, just as it is a challenge to get physically fit so too is it hard work to trim down a credit card that’s bulging with debt. But the good news is: it can be done!

Here are some things you should know about credit cards:

1. Pay off more than the bank expects. You may have agreed to repay, say, 5% of what you owe. Pay more than this, and better still pay off the full amount. If you do the latter each month, you won’t owe the bank interest for spending money that was never yours.

2. Pay off your budget facility with the help of your credit card. If you owe money on your budget facility, ask the bank to pay this off with the other side of your card. This shifts your debt to a place where you will effectively repay less.

3. Don’t ever draw cash if you owe money on your card. You don’t pay interest for goods and services immediately, but cash attracts punitive interest payments for you from the day you have it in your hands if your account is even one cent in the red. Rather draw cash from another account, where you have a positive balance – or one where you do not owe the bank money.

4. You must stick to the bank’s deadlines. Banks often seem to be generous in granting credit limits, so you may find you could spend much more than the total income you expect from your salary at the end of the month on a credit card. Don’t be fooled into thinking the bank is lenient. It expects you to repay the minimum you owe on time, or it can freeze your facility, leaving you red-faced at a till next time you are out shopping. Remember, too, it can cost money to get your card going once again.

5. They’re not all the same, so shop around. There’s lots of competition for your credit card business, so find the card that charges you less – or gives you something extra. Some cards have loyalty programmes attached to them, though bear in mind the rewards aren’t worth it if you have lots of credit card debt. This is because the interest you are charged for credit card debt is very high.

If you’re not very good at managing your money within your means, it’s probably best to stay away from a credit card. It’s very easy to spend money with a plastic card because it’s so removed from the hard labour you put into earning that money in the first place.

When you pay with cash, counting out each note brings home the cost of what you are buying.

If you decide to cut up your credit card altogether, don’t forget to repay what you owe in full, or you’ll earn a poor credit repayment record. And that is a particularly bad mark to have against your name if you want to improve your financial well-being by borrowing to buy an asset like property.

BY JACKIE CAMERON. This is an edited version of an article first published by Moneyweb’s Personal Finance newsletter. Write to freelance personal finance writer Jackie Cameron at jackiecameron.uk@gmail.com.