Financial literacy is an essential life skill, just like reading and writing. It’s never too early to talk to your kids about managing finances as they won’t automatically pick up good money habits (we have to actively teach them and lead by example).
Here are seven ways to start teaching your kids about managing money:
1. Turn family activities into lessons
You might be surprised at how many of your regular family activities contain a hidden lesson about money. Grocery shopping, planning a trip, or going to the bank are all perfect opportunities to introduce financial concepts. Talk about budgeting decisions, explain the difference between needs and wants, and introduce different methods of payment (cash, debit, or credit). There are even board games that teach kids about money management!
2. Open their own personal savings account
Even if you start with $5, your child will love watching their savings earn interest and grow. Motivate them to save by talking about their own financial goals. Try setting up subaccounts within that savings account for short-term and long-term savings. Short-term savings could include anything from buying a new bike to spending money for your next family vacation. Long-term savings covers big picture items like college, a big trip, or even their future mortgage or RRSP. You could set up another account for “mad money” (all the fun stuff like movies, treats, and dinner out with friends). Making saving a habit early on can help kids learn how to be financially independent and avoid relying on credit and loans.
3. Start an RESP early
The sooner you open a Registered Education Savings Plan, the better. An RESP is the perfect place to start stashing savings for your child’s post-secondary education, while getting great tax benefits and receiving free government contributions. Make sure you check out all of the government grants available: the Canada Education Savings Grant, the Canada Learning Bond, and any provincial incentives your child may qualify for. Maximize the benefits and get your kid excited about their future by involving them in the process.
4. Encourage them to pay it forward
You’re never too young to start thinking about giving back; it’s one of the most valuable money lessons you can teach your children. Explain why it’s important to use our money for good, and how even a few dollars can make a big difference. Pick a charity or cause that resonates with your kid (maybe it’s the SPCA), and strike a deal to match their savings penny for penny. Help them research the differences between banks and credit unions to choose where to open an account.
5. Make their allowance a learning tool
Giving your kid an allowance is a great way to teach them how to manage their money and encourages them to make smart decisions about spending and saving. Set an appropriate weekly or monthly amount for their age and be clear about what chores they need to do to earn it.
6. Talk to your teen about credit
Set teenagers up to succeed by teaching them how to use credit wisely. Let them know that credit cards, student loans, and car payments can all affect their credit score positively or negatively. Make sure they understand that late payments or unpaid bills can seriously impact their ability to get a job or rent an apartment. Consider co-signing their cell phone contract to help them securely and safely build up their credit.
7. Teach them the basics of borrowing
If one of your kids wants to borrow money for something, don’t just hand the cash over, treat the transaction as any financial institution would. Set them up with a notebook or spreadsheet to track the loan and come up with terms you both agree on. Be sure to include an interest rate and a reasonable payment schedule. This helps give your children a loaded lesson in loans, interest, and the benefits and costs of borrowing versus saving.
Looking for more information to help you build your financial knowledge, skills, and confidence? Check out Vancity’s free Each One, Teach One program and find out when the next financial literacy workshop is happening.