Understanding financial issues is challenging enough for adults, so it’s no wonder many parents struggle when it comes to teaching them to kids.
According to a Harris/Decima Youth Financial Literacy Study for the Canadian Institute of Chartered Accountants, 84% of Canadians believe young people are ill-prepared to manage their finances when they enter the workforce. While 78% of Canadian parents have attempted to teach their children financial management skills, 60% believe that they haven’t been successful.
Sarah Deveau, mother of three and author of Money Smart Mom: Financially Fit Parenting and Sink or Swim: Get Your Degree Without Drowning in Debt, recommends starting the money talk early.
“Start small and start young, making it a daily habit to talk about money as you grow as a family,” says Deveau. “If it becomes natural to talk about money when your children are six, then it won’t be a problem when they are 13 and college or university savings are on the line.”
But when your children are young, it’s important to approach complicated financial concepts with a bit of creativity, says Julie Cole, mother of six and co-founder of Hamilton-based blog The Mabelhood.
Having trouble getting started? Here are six parent-tested strategies to teach your kids about money:
1. Let your kids earn money
Opinions differ on whether or not allowances should be tied to household chores, but whichever route you choose, find ways to teach your child about earning an income and managing savings.
“I don’t pay my kids to do chores,” says Cole. “No one is paying me to make dinner, so I’m not paying them to clear the table. But I do think they need to learn about money, and how to earn it, spend it and save it.”
Cole’s family uses an elaborate checkmark system where each child has a box on a whiteboard, and they earn and lose checkmarks based on behaviour. At the end of the week, checkmarks get cashed in at the price of $2 for five checkmarks. While they aren’t rewarded for doing basic family chores, they are rewarded for things like being helpful, being a good listener, and showing initiative.
2. Sponsor a child
Many families sponsor international children through organizations like World Vision, a good way to teach children about the difference between “wants” and “needs.”
“I wanted my kids to understand how lucky they are,” says Cole, who would sometimes tell her children that their requests for new toys weren’t in the budget because they had to send money to their foster child.
“They would realize he needed food and running water,” she added. “It was an easy, teachable piece in their lives and he was a real boy that they could write back and forth with.”
3. Donate to charity
Cole also includes her children in the decision-making when she and her spouse plan to donate to aid during an international crisis.
“When the earthquake in Japan happened, I decided I wanted my kids to give up something so we could make a family donation. We did the same thing for Haiti,” says Cole. “We all decided we wouldn’t stop for hot chocolate after hockey for a month.”
4. Teach “buyer beware”
Kids also need to learn to interpret consumer advertising.
Deveau’s daughter wanted to spend her savings on a toy that she had seen in a commercial. Deveau warned her that it wouldn’t work as well as the commercial had promised. Her daughter wasn’t convinced, so Deveau let her purchase it anyway.
When the toy wasn’t up to snuff, Deveau took that as an opportunity to teach her daughter about store return policies. But she also used it as a chance to teach another important lesson about advertising.
“Kids can be really gullible,” says Deveau. “So when you have a chance to do an experiment like that, you take it.”
5. Involve the rest of your family
Ensure you and your family are on the same page about how to teach your children about money. Work with your spouse to develop a plan and make sure members of your extended family, such as grandparents, aunts and uncles – are on board.
6. Help your kids learn to save
Whether you use a traditional piggy bank or an adapted coin bank separated into three sections: “spend,” “share” and “save” — it’s important to teach the value of saving money.
“If they want something but it costs a lot of money, it’s good to have them save for six weeks rather than just having Mommy buy it,” says Cole. “It then has a lot more value when they finally do buy it.”
It’s also a good idea to start them early with their first bank account, and even have them contribute a small amount to saving for their future education in the Registered Education Savings Plan (RESP) you’ve opened for them.