Teaching Your Children Essential Money Management Skills

If you've been following along with the articles that Canadian MoneySaver provides for Costco or even reading the sharing column in our monthly newsletter, you'll know that a priority of MoneySaver is educating the newest generations.

With the rising cost of virtually everything, it is becoming increasingly difficult for my now adult children to move out of our home and find financial independence. With fewer defined pension benefits, lower job stability and salaries trailing far behind the rate of inflation, it has never been so vital that we really drill home the importance of money management to our kids.

So how can you start to teach your children, and even your grandchildren, to build the smart money habits they need to secure a successful financial future? While it's almost never too early—or too late—to encourage financial awareness in your children, it's important to deliver the right lesson at the right time.

School-Aged Children

Examine Your Own Habits

If your children are young, you might still have time to reflect on your relationship with money and clean up any of your own bad habits before you pass them on. The earlier you can do this, the better, because our children are picking up on everything that we do from a very young age.

A study by Dr. David Whitebread and Dr. Sue Bingham from the University of Cambridge, titled “Habit Formation and Learning in Young Children”, found that by the age of seven, children have already formed most of their money habits and attitudes. Now that doesn't mean you can't teach them anything after that age. But they will learn to adopt and mirror your own core relationship with money, for better or worse. If you're an impulse buyer, or if you're constantly arguing about finances with your spouse, your children will use those experiences to build their own beliefs around money.

Think about how you want your children to relate to money and how you'd like them to feel about it and do your best to become a leading example of that.

Give Practical Examples

Children learn by doing, not by saying. With young kids, the best way to teach them anything is to give practical, real-world examples. Instead of telling them all about how that toy car costs $5 dollars, show them how it works. Help them take the cash out of their own savings jar, bring them to the store, and let them hand over the money themselves.

The simplicity of taking part in real, meaningful actions will go so much further than any verbal explanation or comparison you can make. Plus, the more you can work financial lessons into normal, daily activities with your children, the easier it will be for them to begin understanding how money works.

Use a Savings Jar

The classic piggy bank is a great idea, plus it's got an undeniable nostalgia factor. But for younger kids especially, the big downside is that it doesn't provide a visual example of how their savings grow. It's better to use a clear savings jar instead so that they can see the money growing.

This is also a great opportunity to teach your children how to celebrate every “win” and really soak up the joy of receiving. Don't be afraid to talk through their additions to the savings jar, no matter how small, and make a big deal about it growing.

Teens

Give Commissions for Housework

While you may feel your teens need pocket money (perhaps if only for your own sanity), rather than simply giving them all the cash they need, it's a good idea to give commissions too. This way, you can pay your teens a small amount for chores they complete around the house. Then their pocket money can act as a base, ideally with most of their income coming from commissions.

This is a great way to teach your children that money is primarily something to be earned rather than simply being given to them.

Teach Them How to Budget

As soon as your children are in their teens and receiving pocket money, they're ready to learn how to follow a budget. Keep it simple, and if they're mature enough, you can even discuss with them what percentage they'd like to put in savings regularly—just make sure it's at least 10%. You can also use a budgeting app to get them familiar with tracking their expenses.

One important thing to remember here is to avoid policing their purchases. The more restrictions you place on them, the less enjoyable their experience with money will be, and the more likely they are to go against you. A good budget will provide the structure they need, and from there, you can allow them the freedom to spend their money as they wish.

Give Them a Simple Bank Account

Deciding exactly when to open a bank account for your teenager will depend on several factors, but it's a huge financial rite of passage. You don't need to make it scary, but you can encourage your children to take their money seriously by allowing them to manage a small account.

The good news is that today there are lots of accounts, both online and with traditional brick-and-mortar institutes, that are designed for teenagers and students. These accounts are often great options for easing your teenagers into the world of banking, preparing them for successful banking in adulthood.

Involve Them in College Savings

Chances are you've got a Registered Education Savings Plan (RESP) or other savings accounts already set up for your child's education. When they reach those teenage years, it's time to start involving them more directly in those accounts.

Encouraging contributions here will allow your teen to feel like they've got some agency over their own future. This can be a big confidence boost for them.

This can also be a great time to teach them about compound interest and the basics of investing through savings accounts.

Young Adults

Teach Them About Credit

As soon as your child turns eighteen, they're likely to have offers for credit cards left, right and centre. You can anticipate this by teaching them about the basic concepts of credit so that they don't feel overwhelmed or pressured into getting one.

You don't necessarily need to give them a credit card. However, if you choose that route, secured and prepaid cards are useful options.

Either way, you'll want to be sure they understand that credit isn't extra income and that even though you can get away with minimum payments, they should always aim to pay off their whole balance each month.

Talk About Cars

Once your children are at the legal driving age, you'll want to slowly work on some of the concepts around motor finance. Insurance quotes, gas and maintenance fees, and even vehicle financing are all important topics you can chat about.

They don't have to know it all but getting them involved in the financial reality of driving will show them that it is a serious commitment. This can also help your child level up their budgeting abilities and hopefully build their confidence as they enter young adulthood.

You can also make sure they’re informed about how to use rideshare applications, like Uber, safely and economically. Uber for teens has been rolling out across Canada this year, so if your young adult children decide not to take their licence, they may want to use ridesharing apps at least occasionally. The Uber Cash Rewards Program can help you save money on trips, especially with frequent use.

Investments and Portfolios

Your children are already well acquainted with savings accounts, compound interest and building for their financial future. When they're driving and thinking about their college preferences, it's a good time to teach them more about the world of investing.

Stocks, bonds and the basics of risk versus reward are a good place to start here. But remember to limit the theoretical side of things as much as possible and provide as many down-to-earth, real-world examples as possible.

Show them your own portfolio, and use interesting examples from brands they know, like Apple, Tesla, Nike and so on.

Lana Sanichar, Editor-in-Chief, Canadian MoneySaver