Don’t wait until your child is leaving for college to teach them about finance. A Cambridge University Study suggested that children’s financial habits are formed by the age of seven.
Teaching your children how to manage their finances as early as possible will set the stage for a healthy relationship with money in their future. The easiest and most effective way to teach children about money is to involve them in it.
Communication is so important. We tell our children everyday about the dangers and beauty that surround us. Don’t play in the street, look at that bird, that colour is yellow and so on. Rarely however, do we communicate with them about finance. Initiating dialogue is the best starting point of any relationship. Begin their relationship with finance by opening up the conversation not by shielding them.
Here are some suggestions to begin them on their path to financial competency.
For young children we recommend:
A afternoon of glitter and glue can be a fun learning opportunity. Let your child’s imagination go wild and design their own piggy bank. Making it their own design makes them more apt to use and appreciate the bank as it fills with their hard earned money.
Kids love play money. Give them a wallet or purse and let them fill it. Create a grocery store out of plastic food with prices and let your child pay and bag their own groceries. Create a bank and take turns as teller and customer.
It is never to early for an allowance. Earning a fair wage for a good job will teach your child the value of making their own money. Don’t go overboard here. Make the amount age and task appropriate.
Open a Bank Account:
Open a savings account for your child at your local bank. Allow the child to be present when opening the account and talk to them about the various steps. Make a weekly or monthly outing to the bank to deposit their savings then go out for an ice cream or treat afterwards. This will help solidify a positive correlation between banks and saving.
So many games are available that teach the importance of money. From the Game of Life to Payday to online games such as Planet Orange, which teaches children grade 1 to six about saving and investing. How many generations have learned the value of money and real estate playing Monopoly? Pop some popcorn and have a family game night!
Talk about Money:
Let them grow up listening to you talk about money. Let them watch you pay bills, tell them about where your money comes from and where it goes. Let them know about banks and that items cost money. Talk while at the cashier about how much it costs, how you will pay and how much change you get back. Let them watch you not buy something because you can’t afford it without using credit. Make the conversation age appropriate but free flowing.
Let them set a Goal:
Don’t always buy your child every toy. Let them save their allowance for it. It is fun for your child to turn over the piggy bank and calculate how much more they need. It is a valuable lesson in discipline that will help them budget as a young adult. It is also a fun exercise in basic math skills and calculating change. Once they reach the goal let them take the lead by picking out the item and purchasing it. Don’t make this a celebration but rather just a normal exchange of currency for product.
This goes hand in hand with setting goals. As parents we always want our children to be happy but children need to understand that failure is a healthy part of our journey. If your child spends their money and then falls short of their goal, don’t come in as a saviour and buy the item. If the jobs are not done, don’t give the allowance regardless. Allow consequence to do the heavy lifting.
There are a host of games that teach financial responsibility. From banking games to SIMS to Dungeon and Dragons. These games teach not just about money but about making responsible decisions and having to live with the consequences of our decisions. Some of the Canadian Banks (BMO) now have apps that teach teens about responsible spending.
Entering the workforce boosts self esteem and prepares a teen for financial independence. Encourage your teens to seek employment whether it be a paper route or babysitting in the younger years or formal employment for your older teens. Talk to them about a budget and advise them to set aside a small percentage of their wage for savings. Once they are employed reduce or eliminate their allowance. It is important that their leisure spending, or fun money, comes from their employment.
Encourage your child to participate in business clubs or entrepreneurial pursuits. Most secondary schools offer some form of business club or enterprise. Gary Keller, the founder of Keller Williams, created KW Kids Can to engage the next generation. QL for young adults bridges the gap between education and life.
Start to involve them more in family financial conversations. Talk to them about bills, budgets, what you are struggling with. Consider taking them to the bank with you when you renew your mortgage or line of credit. Making them comfortable and familiar with financial situations and institutions will alleviate fear of finances in their future.
College or University:
Being to talk to your older teens about their goals for college or university. Encourage them to make a list of pros and cons for each. Talk to them about the cost and encourage them to begin saving to contribute to the cost. If necessary, allow them to fill out their own application for financial assistance.
Teach What is Necessary vs Wishes:
Our world is geared towards spending. Our children are inundated by ads for the newest, the best, the you have to have. A parents job is to teach the difference between needing and wanting. Credit seems to be king and credit card debt for all Canadians is out of control. Let your children know that you didn’t start off with the house, cars etc. That it took time and sacrifice to get to where you are. Teach them the pitfalls of impulse buying and overspending.
Teach Bad Debt:
If you have lived your life buying on impulse and then fretting about your credit card debit it is inevitable that your children will follow your example. Credit card companies will be relentless in their pursuit of your children once they reach 18. Teaching them that credit cards are not ATMs but are used only for responsible convenience will allow them to avoid the pitfalls of bad debt. Explain credit card interest and the true cost of that purchase. For example for a $2,500 purchase at 18% interest it would take 334 months to pay off your debt (28 years). In that 28 years you would have also paid $5,897 in interest making the actual cost of your purchase $8,397. Try to reinforce the idea of paying the credit card balance each month and also the consequence of bad credit.
Living Below your Means:
This old fashioned idea has great merit. Try to explain to your children that you can be content with less. That material items are just that. That true contentment comes from within and can be achieved just as well in a 10 year old car or generic pair of running shoes. Explain that advertising companies dedicate themselves to implanting the idea of dissatisfaction. They may be surprised to find out that the family with the new cars and multiple vacations is on the verge of financial ruin.
Show Your Warts:
If you struggle financially and have difficulty curbing your spending habits be honest with your teens. Show them that you are not perfect but also explain the consequences of your financial decisions. Explain where you went wrong and how you would remedy it if you could. Alternatively if you are financially successful convey to your children the struggle and sacrifice that allowed you to live in your current lifestyle. Children can feel like failures next to a highly successful parent. They can be under the impression that they have to immediately have the large home, the new cars and vacations. This can lead to unhealthy spending habits in their young adult lives.
I wish I could tell you that once they have established their own lives that your job is finished but I can’t. Your children will solicit your guidance throughout their adult lives. Don’t let your failures or successes suffocate your children and their goals but do offer some words of wisdom when it comes to finances. The most effective way to ensure that your children will be financially secure is to walk the talk. Be a role model. Live a financially responsible lifestyle. Allow them to be a part of the conversation. They are always watching and listening. Make it count.
Jeff Reitzel, has written a reference guide for parents on how to be an influential model in your children’s lives, “The Millionaire Father”. It is now available digitally
Jeff is a life long resident of Kitchener Waterloo and has been a member of our team since 1998. Jeff is the Broker of Record for Mortgage Alliance Canada’s Mortgage Ltd, a Real Estate Broker, has taught for the Financial Service Underwriting Program at Seneca College of Applied Arts & Technology & Conestogo College, is a motivational speaker and is a published author.
You can purchase a copy of his book on Amazon.