Parenting

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Teaching Your Children About Money Management

Strategies to encourage healthy habits and decision-making at every age

By Jeanette Ramnarine

One of the most important gifts we can give our children is the ability to manage and handle money in a responsible way. We all need to have these skills as adults and by starting early we can prepare our children to make smart financial decisions throughout their lifetime. As your children grow, they will have the opportunity to manage money they receive from allowances, monetary gifts, summer employment and part-time jobs. Teaching your child how to divide their money into four key areas – spending, saving, sharing and schooling – will put them on the path to making wise financial choices.

Young children ages 3-5

Spending: As soon as your child is able to count and shows an interest in money, it’s a good time to start an allowance. You can then coach them in making small purchases with their allowance money like a treat from the store, craft supplies, cards and stickers.

Saving: To help your child learn how to save, set a goal for a bigger purchase like a special toy, game or book. Having your child save for this purchase rather than just buying the item for them will instill a sense of delayed gratification.

Sharing: Involve your child in finding ways to share their money and give back to others. Helping with donations to your church or to charities that are important to your family, for example, are both appropriate for this age and will demonstrate the idea of “giving back”.

Schooling: If you haven’t set up an RESP for your child’s education, now is a great time start. Visit www.canlearn.ca for information about RESPs and how the Government of Canada will contribute to your child’s education through the Canadian Education Savings Grant.

Children ages 5-10

Spending: At this age, children acquire money from several different sources. Allowing them to take responsibility for their own spending money promotes accountability.

Saving: Children in this age group will benefit from opening a bank account as a money saving strategy. They may save their money for a specific purchase or they may just like to watch their money grow. A bank account gives them a place for their money to accumulate and it also teaches them about interest.

Sharing: Continue to help your child develop character by finding causes that interest them and that they can support with some of their money.

Schooling: If you have already established an RESP, your child can make some contributions towards saving for their education. This will reinforce the value of saving for something they will need in their future to achieve their career goals.

...hearing about how to establish and achieve financial goals will have more impact coming from someone other than you, the parent.

Children ages 10-15

Spending: This age group presents an opportunity to introduce ATM and online banking if you are confident that your child is responsible enough to handle it. Begin discussions about ‘needs’ versus ‘wants’ and the importance of balancing spending with saving. Make sure you talk about advertising influences, comparison shopping and shopping for value.

Saving: At this age, hearing about how to establish and achieve financial goals will have more impact coming from someone other than you, the parent. A financial planner can be a valuable resource to help your child set some financial goals for their teenage years. For example, they might wish to begin saving for more a expensive item such as a laptop computer or a car. Financial planners can explain investment growth through mutual funds, stocks, GICs and bonds.

Sharing: Encourage your child to continue to seek out causes that interest them. This is also a good age for children to become more involved in the world around them. Help them find ways they can volunteer their time and money for the benefit of their community.

Schooling: Continue with RESP contributions and show your children how you monitor the growth of these funds.

Teenagers 15-18

Spending: At this stage you’ll begin preparing your child for the “real world”. They need to have the ability to manage a chequing account with ATM access. Discuss budgeting and what it means to “live within their means” especially with clothing and entertainment purchases.

Saving: Evaluate their savings goals for more expensive purchases. If they have plans in place, help them to track their savings and investments so they can see how much wealth they are accumulating towards future goals.

Sharing: At this age, you may find that your teen has developed a passion for a particular cause or an organization they believe in. Encourage them to donate their time and/or money to support their passion.

Schooling: Actively research the real costs of post-secondary education (residence, tuition, meal plan, transportation, books, entertainment). Track RESP investments closely and research scholarships, bursaries and grants which can help off-set the costs of post-secondary education. Make sure your child has a firm understanding about debt specifically pertaining to school loans and credit cards.

To cultivate lifelong healthy spending and saving habits, teach your child about money matters by starting with the basics at a young age. Introduce more complex notions and principles as they mature and can grasp the rationale behind them. Step by step, they will begin to understand the real value of the money they earn and save. By the time they are on their own pursuing their dreams, thoughtful financial decision-making will be second-nature.

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