When your kids finally go back to school (we know you’re counting down the days!), they’ll start learning about math, science, English, and history again. But there’s another important subject that probably won’t be on their timetable: financial literacy.
Like cooking and changing a flat tire, financial literacy is a skill that’s rarely taught in schools these days. Yet it’s pretty darn hard to get through life as an adult if you don’t know how to manage money properly. After all, knowing how to earn, save, and spend money isn’t important just for buying that new watch or those limited edition shoes. It’s also essential for ensuring that you can keep a roof over your head and support your family. Kind of important, right?
Fortunately, there are steps you can take to set your kids up for financial success by teaching them about money at an early age.
The first step to teaching your kids about money is helping them understand that it doesn’t grow on a tree in the backyard or magically appear in your wallet when you need it. (If only!)
You can do this by paying your kids an allowance for doing age-appropriate chores at home. For example, younger kids can help you put their toys away whereas older kids can vacuum or do yard work.
When paying your kids their allowance, keep a tally of what your kids have earned and pay them on a biweekly basis. Mimicking a real-world payroll schedule, this approach helps them learn that they need to wait to experience the fruits of their labour. It also gives them the opportunity to learn how to manage money between pay dates.
If your kids are teens, you can also teach them how money is earned by discussing how you (and your partner) make money. Tell your kids what you do at work, how many hours you work each week, and how much money you make. And don’t be afraid to teach them about the expenses that come along with your job, such as those painful paycheque deductions and the cost of that public transit pass.
You’ve taught your kids about where money comes from. Now it’s time to show them how to spend it responsibly to buy everyday essentials—like groceries.
You may not be able to take your kids with you to the grocery store these days. But if you’re placing online grocery orders for pick-up or delivery, have your kids sit with you while you place your order.
When creating your grocery order with your kids, tell them how much money you can afford to spend on groceries for the week and what you absolutely need to buy. You can also give them the chance to add an item of their choice to the cart if there’s money left over.
If your kids are younger, point out the price of each item that you add to your cart and show them how it affects the total cost of your order. For older kids, let them search for the items on your grocery list and help you make decisions about which brand of orange juice or milk to add to your cart based on the price and your budget.
Having your kids help you with your online grocery order gives them a chance to learn how much food actually costs. ($5.49 for a 2L carton of milk???) It also lets them learn how to make decisions about what is and isn’t affordable for them depending on the budget they’re working with.
As you’ve probably learned the hard way, groceries are just one of many expenses you have to juggle in adulthood. To prepare your kids to take on this financial balancing act later on in their lives, teach your teens what it takes to manage a household budget.
It’s easy to do this right at home by showing them how much money your family makes each month and what your monthly expenses are. Be sure to point out all the essential expenses (e.g., hydro and Internet access) and the optional ones (e.g., those movie rentals you’ve bought multiple times a week).
As you do this, talk to your teens about the decisions you make to ensure that you have enough money to pay for both types of expenses without spending more than what you earn. For example, you can point out how you recently cancelled a streaming subscription that you weren’t using to help you save up for a new car.
Having a stash of emergency funds is always important. But it’s especially critical right now given the number of people who have lost jobs, seen their income drop, or faced other financial setbacks because of the COVID-19 pandemic. So there’s no time like the present to teach your kids about why it’s so vital to have an emergency savings account.
To help your kids understand the purpose of an emergency savings account, revisit your household budget and show them what would happen if your income decreased (because of a job loss or change) or your expenses unexpectedly increased (because of surprise home, car, or medical bills). Use this exercise to teach them the value of having 3–6 months’ worth of expenses in a separate savings account so that they’re financially prepared if life throws a curveball their way. Depending on the age of your kids, you can also talk about what would happen if a financial emergency popped up and you didn’t have an emergency fund as a safety net.
You’ve shown your kids how you manage your money. Now it’s time to hand over the reins and let them give it a try (under your very close supervision, of course).
Before you help your kids place an online order for a new video game or pair of jeans, talk to them about how to manage their money. Note that although they can, in theory, spend all of their money now, it’s a good idea to save some for other things they might want to buy later.
Once you and your kid have decided how much money they’ll spend now, have them identify what they want to buy, how much it’ll cost (including taxes and shipping), and whether they currently have enough money to pay for it. If they don’t have enough money to pay for the item right now, point out that they can look for an alternative item that fits within their budget or wait until they’ve saved up enough money.
What should you do with the money that your kids plan to save? Open up a high-interest savings account for them. Many banks offer youth savings accounts with low or no monthly fees to help kids learn about saving money early on. And if your kids are teens with part-time jobs, it’s also a good idea for them to have a chequing account and even an RRSP.
Your kids may not earn an income yet, but it’s never too early to start teaching them about money. When kids learn financial literacy at a young age, it sets them up to become financially responsible adults who can manage their money successfully. And even if your kids can’t appreciate the value of this just yet, they’ll at least learn that knowing how to do math is important after all.