In this age of social distancing, many of us have found ourselves stepping into the role of teacher and having to home-school our kids. Now is the perfect time to make money management part of your lesson plan!
According to Stats Canada, 1 in 6 Canadians say their monthly spending exceeds their income, and 1 in 4 say they borrow to buy food or pay for daily expenses. With so many people struggling to make ends meet, it’s important to instill knowledge about smart money management from an early age and teach kids how to build a solid foundation for a financially healthy future. Here are some tips for talking to your children about finances.
Don’t Make Money a Taboo Topic
For many people, money matters are private and not often discussed, even with friends and extended family members. But you shouldn’t be reluctant to talk to your kids about money. Speaking openly about savings, investments and goals with your children can help demystify financial matters for them. Let them feel like they are free to ask you questions without reservations.
Keep It Simple to Start
When it comes to teaching your children about smart money management, it doesn’t have to be complex. Kids are likely not interested in the difference between an RRSP and a TSFA – nor do they need to be. It’s enough to start with teaching them the basics, like how money enables them to buy things, how making dinner at home instead of going to a restaurant saves money, and how it’s important to have enough cash flow to cover expenses.
Adjust Your Advice to Their Age
Once kids have money to spend, you can start talking about its basic premise: you spend money in exchange for goods or services. Kids over 5 may have an allowance or be gifted money for their birthday. Talk to them about how they’d like to spend that money and explain the concepts of trade-offs and delayed gratification. Do they want to use it all at once and buy a small treat, or do they want to save it until they can afford to buy a bigger treat later? Kids over 10 can handle more complex concepts, such as how to create a budget or use online banking to set up automatic bill payments. Teenagers can become active participants in saving plans for things like college. Once they turn 18 and become eligible for credit cards and loans, they should be fully versed on the implications of debt.
Be a Storyteller
Finances can be a rather dry topic, so keep kids interested by telling stories, either using hypothetical scenarios or (even better) anecdotes featuring people they know. Are there lessons they can learn by hearing about your family’s experiences? Did you or your parents grow up struggling with living costs? Who taught you about finances, and what was the one piece of advice you remember most? What was the first major purchase you ever saved up for, and how did it feel when you made it?
Give Kids an Allowance
Allowances, especially if they are based on chores, familiarize kids with the concept of getting paid for their work. Starting around kindergarten, getting an allowance gives children a window into the concept of earning and being in charge of their own money. Give them physical currency they can hold instead of e-transfers, which are harder to comprehend. Celebrate their wins, such as when they grow their savings to $50.
Be Ready to Address Discrepancies
As children get older, they might start comparing their situation with others and noticing that some of their friends and classmates have bigger houses or expensive clothes, while others have less. Be ready to discuss why that is and explain that some families have plenty of money while others don’t have enough. Try to do it in a way that does not express judgement or use terms they could interpret as pejorative, such as “poor.”
Make Them a Participant in Family Budgeting
Is there a major purchase that your family is saving up for? Are you actively investing? Depending on your child’s age, explain your goals and keep them in the loop (in basic terms) with your progress. Be transparent about the challenges you’re facing (“We weren’t able to put away as much as we wanted to in our family vacation fund this month because we had to buy a new water heater”) and celebrate your wins (“Our tax refund means we reached our savings goal faster than we expected”).
If you want to learn more about smart money management or need help setting up a Registered Education Savings Plan (RESP) for your children, please feel free to contact one of our Financial Services Representatives.