Money isn’t something a lot of families like talking about at the dinner table, but my family did. Growing up, my dad was (and still is) always on the lookout for a good deal and he drilled the value of a dollar into me at a young age. I have fond memories of going along to check out a used lawn mower he found in the classifieds. Or to pick-a-part to search for that car part that we needed. I picked up on his keen ability to search out value in every buying decision, and it has served me well as an adult.
As my wife Madeline and I are about to have our first child, it got me thinking about the things parents can do to raise their children to be good with money. I realize it will be quite a few years before I really need to think about this, but a lot of True North clients have young kids and I thought I would research best practices for raising money-smart kids.
THINGS TO DO FROM GRADES 1 TO 3
Start with the piggy bank
Have your child save those pennies for the next family trip or experience. Have them add to it throughout the months and make sure that this jar is visible, but not accessible to your children. The savings jar acts as a visual cue to the child about the steps you personally take to attain financial goals. This visual cue will greatly aid your young child's understanding of savings and will help them in the future. Even if it means a few more trips to the ATM for you.
Talk about your spending
Go grocery shopping with your child and talk through your buying decisions. Verbally explain to them why are you buying certain products over a cheaper or more expensive counterpart. Why are you buying some things that are on sale and why not others? Why are you picking up some items but then choosing not to buy them? As your child grows, allow them to participate more by picking out items from the grocery list, and require them to discern between a couple different options based on value or ingredients, etc.
GRADE 4 - 6
By this age your child should be ready to start associating money with work, also known as an ‘allowance’ where your child does some chores and earns a commission or reward for the hard work. Be clear that some chores they do because they are part of the family and everyone chips in. But separate a couple jobs they can accomplish themselves, and be rewarded for it.
Give them the allowance right when the chore is done, but make them put it in their piggy bank or jar until the end of the week. Then once a week, sit with them and split their money into 3 envelopes: give, save, and spend. If they get $5 for vacuuming the house on Saturday’s, maybe give it to them in coins, rather than a bill, so it’s easier to separate into the envelopes.
Saving and spending
By Junior High, your child has likely made a handful of saving and purchasing decisions. A good step at this age is to open a bank account in your child's name. If they have the option to receive a debit card, consider giving them the freedom to use it. Most banks will let you set a spending limit on their card if it makes you feel more comfortable.
As your child begins to accumulate savings, get them a High Interest Savings Account so they can learn how money can make more money. Explaining the differences between a credit card and a debit card is a great idea at this point. Things to highlight would be interest rates, credit scores, and compounding interest.
Give them examples of types of purchases that you can justify the use of credit and ones you shouldn’t. For example, one advantage to credit cards is their extra warranties on some purchases and rewards programs. Get personal and tell them your stories of your credit card blunders and achievements.
And the first job
High school is likely when your teenager will get their first job. That first paycheque, however great, might also confuse them: they probably thought they were making $15/hour, and you need to explain why they were only paid $11/hour. Go through this first paycheque with them in detail. Dive deep into their employee benefits, EI, CPP, and the income taxes that were withheld and why. Walk through their tax return with them and explain why they got a refund or why they owe.
By this age they should have had some experience with savings, but now you can get them real excited about saving for their first car. Some parents agree to match what their kids save for that car, much like a company matching your RRSP contributions. This will really help them budget and save from an early age. They will also treat that car very differently if they have their own hard-earned dollars into that vehicle.
PREPARING FOR ADULTHOOD
Someday, your teen will need to move out on their own and you want to be sure they are equipped to handle independence. Make sure they are educated on the true cost of living before they move out: rent, car insurance, food, cell phone, internet, and rainy-day savings. What does independence look like on paper for them?
Coinciding with these conversations, you can get them thinking about careers by explaining what various careers make on an annual basis. Some parents may even share their own financial position and what it took to get there. Mortgage details, home value, taxes, and car payments are the big ones. Bit by bit, get them comfortable with the idea of borrowing money. Getting your teen to have these thoughts brewing in the back of their mind can make them more resilient adults, comfortable with making important life (and financial) decisions.
When it comes to creating financially literate kids, don’t rely on your school system to educate your kids on money - it won’t happen. Start teaching good money habits long before they are teenagers and have stopped listening to a thing you say. Including your children in money management experiences can start happening as early as the first grade. If you invest the time teaching your kids about how to manage their money, there’s a better chance they’ll need less of yours in the future. And that’s a good thing.
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