Money can be a source of both joy and stress. For families, it can be a sensitive subject to discuss, especially when it comes to children. Growing up, we learn about money from a variety of sources: family, friends, television, the internet.
When it comes to your own children, teaching them about money should be part of a wider set of values you hope to impart. As Gary Rabbior, president of the Canadian Foundation for Economic Education, told the Globe and Mail, “Helping kids have financial skills isn’t just about the numbers and which is the right credit card, but empowers them to build a healthier, happier life in general.”
Below are some helpful tips to consider when discussing money and finances with your children.
Experts agree: it’s important to start talking to kids about money early on
The Financial Consumer Agency of Canada suggests starting conversations about money with your children at an early age. This can help them learn to make good decisions about when to save versus when to spend, and basic concepts such as budgeting. And if you talk about money when your children are around, it will help them become familiar with financial concepts and ideas, like credit cards and chequing.
Of course, the conversation around money is something that can happen from the time a child is able to talk right up until he or she enters adulthood. As a child moves through different stages of life, they’ll have shifting financial priorities and desires.
Should you give your child an allowance?
“Where does money come from?” It’s one of the first questions children ask about money, and what better place to start the conversation. Money comes from several places – working, investing, family – but most people don’t have an endless supply of it. Offering a child an allowance on a weekly or biweekly basis helps them set financial goals. It also sets clear expectations about what expenses they are expected to cover, says the Money Coaches Canada blog.
Such expectations help kids decide for themselves what’s important, and this is where they can develop an idea about what they want as opposed to what they need. It’s the first step in learning to budget. It’s also important to let children make mistakes with their money while showing them the consequences of poor spending decisions; in other words, if they spend their allowance all at once they won’t receive additional cash from you.
The importance of teaching kids to set financial goals
While giving a child an allowance can be a great way to introduce the idea of budgeting and living within one’s means, it also provides a great lesson in setting financial goals. You can explain to your kids the difference between saving for a short-term goal, like buying a small toy or a favourite meal, and budgeting for a more substantial expense, like a new bicycle or video game.
This can lead into a larger conversation about needs versus wants. Explaining that you must use your money to focus on what you need, and then allocate what’s left to what you want. You could even use your own household finances as a real-world example and have your child help you identify the things your family needs, like groceries and gas for the car, compared with the wants, like cable television or a new computer.
Show that, with patience, value of assets can grow over time
One of the most exciting revelations about saving money is watching it grow over time. Teaching a child to contribute spare change to a piggy bank demonstrates patience and the concept of waiting for a reward. Many parents open bank accounts for their kids while they’re infants, depositing monetary gifts received from family and friends. Depending on your level of comfort, you can provide the child with more information about this account as they grow older.
Many Canadian financial institutions offer savings accounts specifically geared towards children. Working through the process of opening the account with your child, as well as regularly checking the balance, is a great way to illustrate the concept of interest. Even tiny increases in the balance over time could motivate a child to start thinking long-term about their own financial future.
This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.
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