With the average debt of Canadian households at an all-time high, it’s little wonder that many parents are eager to teach their kids the financial basics. What might be surprising, however, is the age at which experts suggest you start those lessons. Perry Quinton, vice-president of market for the Investor Education Fund, recommends beginning as soon as a child understands what money is. “Quite frankly, if you are waiting until high school, it’s too late.”
“Financial knowledge is an essential skill,” agrees Jenni Bolton, a part-time consultant with the Canadian Centre for Financial Literacy. Recently, Bolton and Caroline Munshaw, both Toronto moms of two, started Cent$ible Students, a program designed to develop a deeper understanding about money in primary-grade students. They have presented their program to more than 1,000 pupils in the Toronto District School Board and the Toronto Catholic District School Board. ” By discussing these concepts early on,” says Bolton, “it can set children up for a sensible, life-long approach to money management.”
Once children stop trying to eat loose change, they are ready for their first piggy bank. The bulk of their loot will likely consist of pennies and other small coins gathered from around the house, though relatives tend to become a source of loonies and toonies once they discover there’s a piggy in the place. “At this age,” says Bolton, “it is important that they become acquainted with money. Teach them about the colours, names and values.”
Your child understands what money is and its value, but there may be some confusion as to where it actually comes from. Bolton says it’s not uncommon for five- or six-year-olds to suggest to parents that they just get some money from the machine in the wall. “Now is a good opportunity to explain how money is earned, which leads to how bank accounts work and how debit machines operate. They money has to go in first,” she says.
This is also a good time to start an allowance—but parents must decide whether or not it will be tied to completing chores. Quinton believes it should be. “If you just hand it over to them, there is no value attached to the money.” In Bolton’s house, her children’s daily responsibilities, such as making their beds, are not related to allowance, but she does allow them to earn money beyond routine tasks, such as washing the car. “I do prefer that kids have a certain level of expectation around the house, otherwise they may expect to be paid for everything they do,” says Bolton. “That said, there is not just on right way. Parents should pick the strategy that suits their family and be consistent.”
And if your child claims she simply can’t live without the latest video game/scooter/shirt that is not in the family budget, have her do the math on how much she needs to have in the bank and how much she can earn each week through allowance, cash gifts or extra chores in order to save up for it. (Keeping a chart next to a picture of the goal can be motivational.) Delaying the purchase may even have her think twice about whether it’s really what she wants to spend her money on. Kids who can do simple addition and subtraction can also benefit from a piggy-bank upgrade. Label three or four jars, one each for spending, saving, education or sharing and discuss how much of her allowance should go into each. “Explain that parents make the same choices with the family budget,” suggests Bolton.
Now the concepts get more complex, says Bolton-how credit cards work and even simple investing are great topics. “For parents, just taking the time to talk about and explain some of the family’s financial decisions and obligations can spark deeper conversations. For example, if there is a new but agreeable desire, instead of saying ‘Sorry, we don’t have enough in our budget for that,’ try ‘Let’s see how we can find room’ and then engage in a conversation about trade-offs. What would we have to give up or cut back on in order to obtain that?” Summer is also a great time to teach children the value of a dollar, says Quinton. If your child wants to visit a theme park or take part in another activity, let her do the planning. She’ll quickly learn that some outings cost quite a bit of money. “Children will learn to pick and choose what to do. It is a precursor to budgeting,” says Quinton.
And if you haven’t already, help your child to open a young investors’ savings account at a financial institution and sign her up for online banking so she can monitor the account. “A savings account can be used to backstop long- and short-term goals, like school trips, education and technology,” says Quinton. “And watching savings grow can be a very powerful incentive to save even more.”