There are no exceptions – we all have to learn how to manage money matters – yet very little is done in advance to prepare us for this massive responsibility.
Real world examples and education at an early age will be some of the best advice you can pass onto your children. Until our school systems step up to the plate and do a better job, it’s up to us as parents to pave the way.
Just as a child learning a second language at an early age is far more likely to become proficient than a late-in-life learner, I believe the same is true for developing our children’s financial IQ. The sooner the better.
As soon as they have a basic grasp of numbers, allow them to handle money as much as possible.
When you are shopping, let them pay the cashier with your money or card, and allow them to check the change, review the receipt, even sign the card slip.
Review your credit card statements with your child – show them how you manage it, and where the money is going.
Teach them nothing comes free in this world.
Don’t spoil them. If you give them an allowance, make sure it is tied to specific chores or other household responsibilities.
Do not however, cultivate a mindset at home that they will expect to be paid whenever you ask them to do something.
Instead create a team like atmosphere – where together all family members help out for the greater good and everyone can play a role – even the young ‘uns.
Consider a small reward system for school marks which exceed their norm.
Get them outside and working part time as soon as you are comfortable. Don’t expect a spoiled sloth like sixteen year old to wake up with a zest for work. Delivering community papers and flyers, shovelling snow, volunteering in nursing homes and food banks, are all good starting points.
Don’t wait till Grade 9’s “take your kid to work day.” Look for opportunities to take your child to work for at least a part of a day – let them soak up what you do and how you make money.
Help them develop an understanding of the power of regular saving.
If you have a vacation fund bank account or money jar, share its progress with your kids on a regular basis.
If you have set up an education fund for your child, review its growth whenever you get a new statement in the mail. Map it out against the expected cost of education in the future.
If they have wants that exceed your family’s budget or comfort, show them the way. Teach them to save half their allowance each week, or bank (in the child’s name) their money gifts from relatives.
Trade cash for gift cards with your kids, if the cash will be needed more. Don’t be afraid to (gently) negotiate terms with you.
If you have an RRSP, show them the statements; explain how the underlying investments work, why you have this thing, and how it is progressing over time.
Open up bank accounts in their name.
Teach them how to read the monthly statements, and how to check their bank account online. Don’t be afraid to let them have a checking account too. Most banks fall over themselves in letting kids bank free – so take advantage.
When your child needs to pay for school activities or fees, or even extra curricular activities, you can first transfer the money into her account and have her write the check.
Be careful with this one – in terms of when you might allow them the ability to use their debit card, or to write any checks at all without your knowledge.
Help them develop a healthy respect for debt.
They need to understand the best debt is no debt. But sure, there are “good debts” and “bad debts” as many experts in our industry like to say.
A car lease or loan is an example of a bad (but often necessary) debt. Teach them how some debts are secured against wasting assets, whereas others are secured against assets which should go up in value.
A home mortgage (appropriate in size and terms to your income) is usually an example of a good debt.
Any credit card balance not paid in full at the end of the month is a bad debt. Explain why. It means you bought something you could not afford.
Teach them how to get the most value from their dollars.
Whenever a significant purchase is looming, ask them to help you research deals and savings on the internet or in newspapers and magazines. Teach them how to source reviews and reports to make sure you are buying quality and value.
Open an Air Miles account for them, and carry an extra card with you. From time to time accumulate miles on their behalf – which can be redeemed for movie passes or many other cool things.
Many stores offer rewards cards which may seem like more of a hassle than a benefit to you. But work out a system with your child for these cards, where the cards are all kept in a separate wallet and used if and when the situation arises. Let her track the rewards, and determine if there is anything worth claiming and perhaps share these rewards with your child.
Watch and learn
Let them negotiate with you.
Whether it’s for a later bed time, or an increase in allowance, or any number of things your child considers important, teach them early how to state their position, and ask for something in their favor. Let them learn the process of haggling, and the difference between win-win outcomes as opposed to win-lose scenarios. And let them watch you as you exercise these skills in your day to day life.
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