Instant versus long-term rewards: be wise with your finances

TODAY’S society is geared towards seeking instant gratification in almost every aspect of life. It is reflected in our daily lives through the expectation of fast foods, instant coffee, drivethrough restaurants, drive-through banks, content-on-demand and countless online facilities. However, when this desire for immediate reward is carried into financial management, alarm bells should start ringing.

Surveys conducted by organisations such as PWC and the South African Reserve Bank show that South Africans are spending 70% of their take-home pay on debt. These statistics are disconcerting, because they indicate that very little is available for savings, which does not bode well for future outcomes. In fact, according to a case study conducted by Creditgateway, 51% of an employee group were in financial distress.

Parents normally want to provide their children with the benefits and advantages they never enjoyed themselves, and unwisely lean towards material things and spending a lot of money on their children’s instant gratification. But the biggest gift they can bestow on their children as well as on themselves is the long-term rewards that grow over time.

They should be inculcating their children with principles of wise financial management, getting them practically involved in budgeting and saving, demonstrating the gains that are made and the solid foundations being built for their futures.

One way is to create a savings plan to which parents can contribute the same amount as the children save. It is encouraging to see the amount grow, and to start understanding what the concrete benefits of these savings will be down the line. Counter the glitz and glamour to which children are being constantly exposed through social media and celebrity marketing by explaining the difference between being rich and being wealthy: rich is mostly spending of cash flow, looking the role, seeking the limelight; wealthy is the accumulation of assets, which is less spectacular and showy but has solid and reliable results.

Children can learn from an early age that it is not the flash-in-the-pan status that counts but the long-term stability. You could do online searches on successful investors, such as Warren Buffett, or even make a collage of the goals you want to achieve with your children. And along the way, remember to include small rewards for aims attained to encourage your children.

Teach them basic principles: don’t spend what you don’t have. Delay spending and plan ahead. Reward yourself when you have reached a financial goal.

Of course, inculcating in children an appreciation for finer things – family, friendships, nature, art and the happiness that money cannot buy – goes a long way to helping them to get their priorities in life properly balanced.

When it comes to convincing teenagers to save, you can catch their attention by pointing out that saving creates opportunities for travel, a good education and a satisfying lifestyle.

With savings they will be able to enjoy university to a greater extent, perhaps even purchase a vehicle, and will be creating opportunities by having more choices.

Having options and choices is a very powerful motivator.

It is a fact, though, that in South Africa a large percentage of the population has little or no understanding of financial management, and the lack of financial skills can lead to a repetitive cycle of spending for immediate gratification, accumulation of debt and increasing poverty.

First-generation executives often plunge into elaborate lifestyles, frequently changing employment and sinking into debt, to the extent that they end up in financial distress.

However, the other side of the coin is that there are those who have witnessed their parents’ unwise choices and have determined to break the cycle. So they focus on financial stability, wise management and financial options with a goal of leaving a financial legacy.

In all financial management and planning, it is advisable to have a trusted financial adviser as a sounding board, who can provide expert input and help you plan feasible and attainable short, medium and longterm goals.

This is especially the case if you find yourself in an emotional rut where you are unable to make objective decisions. Fear, despondency or desperation can play havoc with any financial plan, and the advice of a professional is crucial in these circumstances.

Contact a financial adviser who specialises in creating long-term strategies, not quick fixes. Knowing what you need per month and how you need to finance your long-term goals will enable you to devise a financial strategy for your lifetime. You can enjoy temporary pleasure from splurging today, but a proper financial plan will ensure you enjoy the rewards over a lifetime, and provide you with lifestyle choices in the future.

Christelle Louw is an advisory partner and wealth management specialist at Citadel.