Financial Literacy is a big problem across Canada with many young people unable to understand even basic skills like, what does it mean to save, how do you open a bank account and how much do everyday items cost. Money knowledge starts at home. Research shows, if children are exposed to money matters early in life they will be better equipped to handle their finances as they get older.
But when should parents start talking to their kids about money. In my opinion parents should have the “money talk” as soon as they feel their kids are ready to have the “sex talk”. Frankly if your children are ready to learn where babies come from, they’re also ready to learn were money comes from.
Here are some of my recommendations on teaching kids about money.
Open up a bank account in your child’s name
A savings account is the most fundamental way to teach your child about saving and spending money. Take your child with you to open a savings account; give them a bankcard so they understand that this is their money. When they deposit money make sure they see how their account is growing. Make sure they understand the fundamentals of what a bank account is and the security that comes from having one.
Allowance should be earned
An allowance on its own does not teach kids the value of money, instead give them a list of chores that they get paid for. Cleaning their room, washing dishes or mowing the lawn. Make sure the chores are appropriate for your child’s age. If you are paying your child $15 a week, create three chores that they must complete that pay them $5 each. This will give them a good work ethic and help them understand what it means to make money.
Reward children for good grades
Just as an employee would be rewarded with a bonus or promotion for a job well done, children should be rewarded for getting good marks in school or winning an award. This helps teach young people the value of going “above and beyond” the call of duty and sets them up for later in life.
Piggy Banks are a big NO NO!
Do not give your kids a piggy bank for saving. Piggy banks teach kids that saving money is a mystery and putting all your money in one place is the best way to save. Piggy Banks are fine for fun and to get kids putting change away, but it does not teach them how to save. They can’t check their balance, they have no way to get at the money unless they break the piggy and the money is not safe.
Help them spend money
Once your child has saved up enough money to buy an item they want. With your permission they should be able to purchase it. Help your child by finding the best price on the item they desire, shop around at a few stores with your child to help them understand they’re in control of their money and they can be a savvy consumer.
Teach them the value of donating
Giving away money is the best way for children to understand the value of money. If your child has a part time job and is making some consistent income approach them about the idea of donating some of their earnings. Even donating $10 a month will help your child understand how valuable a small amount of money can be to someone who has none.
Financial literacy is a journey that has to start at a young age. These easy steps will help your children understand how difficult it is to make money, how easy it is to spend it and how giving a little bit of money away can change someone’s life.
Robin Taub is the author A Parent’s Guide to Raising Money-Smart Kids, I had the pleasure of speaking to her recently about how parents can talk about money at home.
A Parent’s Guide to Raising Money-Smart Kids is a practical resource to help parents explain to kids the importance of learning about money. By guiding parents through the five aspects of money management – Earn, Save, Spend, Share and Invest – the book provides hands-on suggestions that parents can apply to teaching kids about money at any age.
Robin’s book is available through the Canadian Institute of Chartered Accountants’ CA Store.