The best way for your kids to learn money management is through you
Have you visited the child-rearing section in a bookstore lately? There are so many books on how to teach your children about money, it takes a genius to choose the right one.
(Reading time: 3:38)
Well, spare yourself the time, the worry, and the money of picking the perfect book … because the truth is, the best way to teach your children how to handle money is by example. According to Educators Certified Financial Planner professional Lisa Raponi, “If you have good money habits, and share ‘why’ and ‘how’ you are using your money in a way your kids can understand, you will have given them a sound foundation they can use the rest of their lives.”
Sounds simple, right? The problem is, we get busy, or tired, and it’s hard to take the time to explain, or to be consistent. But the payoff in following the guidelines below is big – nothing less than giving your children a valuable lesson they’ll use the rest of their lives.
1. Lead by example.
Involve your kids in the conversation when you’re planning or making money decisions – be that writing out the grocery list or planning the family vacation – and here’s what happens:
|Make a shopping list before going to the store||To avoid impulse shopping|
|Put off a purchase because you’re saving for a family vacation||To save for priorities|
|Compare prices at different retailers before buying||That money is valuable and worth getting the most for it|
|Have a budget with sections for day-to-day expenses and long-term savings||That money management is a practical skill that can be learned|
2. Make time to explain.
A visit to an ATM. Comparing prices online or in a flyer. Every day, there are opportunities to explain where money comes from (“I get paid for the work I do, and keep my money in the bank so that it’s safe. I take it out at the ATM”) and the importance of spending it wisely (“If I find a lower price for the coffee maker, I can use the money I save for our family vacation”).
3. Give them some money to manage.
Most subject matter experts agree – kids need some money in order to learn how to manage it. Some parents decide to give an automatic weekly allowance. Some pay for chores. Whatever you choose, encourage your child to divide it into two jars or piggy banks: one labeled ‘Short term’ (for weekly needs), and one labeled ‘Long-term’ (for long-term goals). If encouraging your child to donate is important to you, have a third jar.
Discuss what the money in each jar should be used for, and be realistic. If your child is given $10 a week, for example, it may be unrealistic for it to cover lunch money, transportation, other needs, and have something left over to save. Encourage them to put 10% of the money they receive into the ‘Savings’ jar.
4. Be consistent.
You know how difficult it is for you to save if there’s a salary disruption? For your kids to be able to have some trust that their saving will eventually pay off, they need to know that they will be paid regularly. Follow the guidelines you established in #3, and resist bailing them out if they need more because they’ve failed to plan ahead.
5. Remain open to discussion.
You are, after all, their parent. If your child comes to you to say that they want a larger allowance, be open to a discussion around what the money is needed for. Their needs may have changed, or perhaps the amount originally discussed can’t really cover what you thought it could.
6. Be patient, and be age-appropriate.
Rome wasn’t built in one day. Kids aren’t going to understand budgeting, borrowing, and investing in just one session. The good thing about teaching by example is that you have a long time to do it.
Here is what The Financial Consumer Agency of Canada* thinks kids should know:
Ages 4 to 8:
- understand that people have a limited amount of money to spend
- use money to buy basic goods and services for simple transactions
- divide allowances or other money received among the financial goals of saving, spending and sharing
- understand that there are choices when it comes to money, and that money spent on one thing means that there is less money available for something else.
Ages 9 to 14:
- recognize the difference between needs and wants
- understand the importance of saving a portion (for example, 10%) of all money they receive and the value of an emergency fund
- create a savings plan for short-term and long-term financial goals
- identify regular financial commitments families have and know that families use household income to meet those commitments
- create a simple budget for an activity or event.
Ages 15 to 18:
- understand the pros and cons of different payment options such as cash, debit cards and credit cards
- understand different kinds of basic investments (GICs, bonds and mutual funds)
- understand the time-value of money (for example, past, present and future worth of money)
- understand the concept of “living within your means” and why it is important.
As a parent, teaching your children about money – just like teaching them manners, or kindness, or standing up for themselves – is not a one-semester course with an exam at the end. It’s an ongoing commitment for you, and one of the most important lessons you can teach your child.
At Educators, we’re firm believers in everyone increasing their financial literacy – children, students, and adults.
Did you know that we offer an in-school “Credit 101” workshop for students in Grades 11 and 12? Learn more about our workshops, here. It’s also why The Learning Centre has articles, information and tools on many financial subjects. Check out The Learning Centre today!