The household saving rate with South Africa slumped from 0.40% to 0.20% in the third quarter of 2018, according to Trade Economics. 

A breakdown of the different generations points to certain financial constraints, responsibilities and pressure.

This is particularly relevant to the so-called "sandwich generation" -  31 to 49-year-olds - who are not in a position to save due to their financial responsibilities to younger and older dependents.

To address challenges faced by previous generations, experts believe parents need to educate their children about finances from a young age.

Conversely, parents should attempt to have adequate savings for their own retirement nest egg for them to be financially independent.

Sonja Visser, chief executive officer at African Unity, suggests four practical ways to broach the subject of saving with your children.

These include:

• Helping them set up a simple budget so they can plan what they are going to spend their pocket money on;
• Setting a good example by drawing cash and paying with it, rather than charging everything to a credit card;
• Helping them save over a set period for something expensive that they would really like, by giving them chores to do or encouraging them to save their pocket money rather than spending it on sweets/trinkets;
• Illustrating compound interest by letting them put a small amount of money in a savings account or unit trust and encouraging them to work out how it will have grown, in one month, one year and so on.

Safeguarding Gen Z

So how do we go about educating our children, also referred to as Generation Z (those born between 1995 and 2010), against the financial shortcomings of their predecessors?

Visser believes you can start from as young as five, but that you need to ensure that these life lessons are age appropriate.

“So, for a five-year-old, you may want to explain what a bank is and how it operates, to ask them if they can identify the different bank notes and coins, and to help them save towards a special toy by putting away some of their pocket money, or money from chores, using a piggy bank.

For a 10-year-old, chat about what interest is, what loans are, as well as how things increase in cost over time (inflation). They are sure to laugh at your stories about how a packet of potato chips that now costs R5, used to cost you 50c.

And, for a 15-year-old, especially one studying Accounting at school, the sky is the limit as to what you could potentially discuss. Stocks, bonds, property and other forms of investments. Also chat about some of the mistakes you made with money in your youth and how you paid off that debt or did your research more carefully thereafter.”

A Glance at the Millennials

A significant proportion of this generation continue to spend money they don’t have, to keep up with their peers, says a Credit Karma survey.

The main reason 40% of this group (18 to 35-year-olds) feel pressure to overspend relates to social anxiety and the fear of not fitting in, the survey revealed.

Visser says: “Remember that your true friends, just like those who love you – parents, grandparents, siblings – will want the best for you, which means financial security.

Also, you will set a good example for your peers, reversing the situation somewhat, if you admit to saving up for an item over the next 12 months, rather than buying it on credit now and then having to deal with the consequences over a much longer period.”

Visser concludes by saying that all these pointers will help to ensure that your children develop a better grasp of money matters as they transition into adulthood.

Tips for parents

Start educating your children about money really early because research shows that adult spending habits are set by the age of seven.

Explain how many hours you would have to work for something they want, as well as the difference between wanting and needing an item.

Pay pocket money in lower denominations so that it is easier for your children to divide it up into spending money for their wallet, and what they could save in a piggy bank or jar. Once they are older, their cheque versus savings accounts could reflect the same split.

Teach your children about money’s high and low points – i.e. you hand it over for that special toy or gadget that you have saved for, but then you have an empty piggy bank.

Provide them with a good example by encouraging shopping trips that only involve browsing to compare prices and by buying necessities with actual cash instead of swiping without thinking  on credit.