With the Money Smart Week (29 August - 4 September) initiative upon us, it is critical that young people understand the importance of managing their finances.
Young South Africans, especially the young people who belong to Generation Z (aged 25 years and under), face a number of challenges such as youth unemployment and tough economic times on their journey to financial freedom.
Any conversation with Gen-Zers around healthy financial habits must therefore be based on empathy and a keen understanding of the unique pressures that young South Africans face, according to financial expert and author, Sam Beckbessinger.
Beckbessinger said, “The key to promoting sound financial acumen amongst the youth lies in making the fundamental shift from talking about money in terms of products, to talking about it in terms of principles.”
Beckbessinger shares the four main principles that form the basis of how money works. These include:
– the concept of an asset, how money is made
– the concept of compound interest, how money grows
– the importance of diversification, how to keep money safe
– debt
Here are four ways Gen-Zers can work towards financial wellness:
Understanding the value of time
Beckbessinger said that the concepts of “power of compound interest” and “time is money” are more literal than many may realise.
“A vampire invests R200, and without adding any additional investment to that initial amount, he earns R1 billion over 200 years.”
She said that the most valuable thing that young people need to know is that time is the most important contributing factor to wealth growth.
“The same can be said about debt, where the longer the indebted person takes to pay off the debt, the more expensive it becomes.”
Don’t live month-to-month
Beckbessinger advises young people to steer clear of a lifestyle of living paycheque to paycheque.
To avoid this, Beckbessinger advocates for a practical approach to financial management such as monitoring expenses. Gen-Zers can track their expenses using an app or by reviewing their bank statements.
“Tracking your expenses will give an idea of whether your financial habits support your personal financial goals.”
Be careful of financial scammers
Beckbessinger cautions Gen-Zers against falling into the trap of get rich quick schemes.
“One of the telltale signs of a money scam is undue and relentless urgency to make a deposit or financial commitment. If you’re being pressurised to make a rash decision, you’re most likely being scammed,” Beckbessinger said.
“Arguably the best-performing asset class is the stock market, which historically has earned investors 7% above inflation. Individuals should be wary of any person offering higher returns than these or claiming to be able to offer guaranteed returns.”
Before entering into an agreement involving an investment, check the websites of local financial services boards to make sure that they are regulated.
Beckbessinger said that regulated companies and products are generally safer.
Seek good advice
Beckbessinger said that given the growing number of financial scams, good financial advice has never been more valuable.
“Trustworthy financial advisers will be upfront about their fee structure and will have transparent and official policies and contracts in place. They will also be open to answering any questions to ensure that their clients make informed decisions based on solid financial principles,” Beckbessinger said.
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