Start teaching your children about money when they are young. This way, they will learn how to:
- make good decisions about spending now
- save for the future
- practise good financial habits that will last a lifetime
- be financially responsible.
Canadian and international organizations are working to identify the types of financial knowledge, skills and behaviours children should learn at different ages.
“As more financial decisions are faced by Canadians at younger and younger ages, grasping financial principles early in life is crucial to being better prepared to participate in the Canadian and global economy and avoiding pitfalls in financial decision making.”
Here are some financial concepts you can discuss with your children as they grow up. For example, help your children learn to:
Ages 4 to 8:
- understand that people have a limited amount of money to spend
- use money to buy basic goods and services for simple transactions
- divide allowances or other money received among the financial goals of saving, spending and sharing
- understand that there are choices when it comes to money, and that money spent on one thing means that there is less money available for something else.
Ages 9 to 14:
- recognize the difference between needs and wants
- understand the importance of saving a portion (for example, 10 percent) of all money they receive and the value of an emergency fund
- create a savings plan for short-term and long-term financial goals
- identify regular financial commitments families have and know that families use household income to meet those commitments
- create a simple budget for an activity or event.
Ages 15 to 18:
- understand the pros and cons of different payment options such as cash, debit cards and credit cards
- understand different kinds of basic investments (GICs, stocks, bonds and mutual funds)
- understand the time-value of money (for example, past, present and future worth of money) and opportunity costs
- understand the concept of “living within your means” and why it is important.
Put your children on the path to financial success and smart decision-making by starting early. You can help them gradually take responsibility for their own financial well-being.
Here are a few tips to help you get started:
- Talk about money when your children are around so that they become familiar with financial terms and concepts.
- Start out easy. With young children, it’s best to start with very basic concepts, such as counting and learning to identify the value of different coins and bills.
- Build on the basics. As your child grows older, introduce more advanced concepts such as needs versus wants, budgeting, and income and expenses. Learning about finances at a young age will help your child have a better understanding of more complicated financial products in the future, such as credit cards, loans and investments.
- Look for teachable moments. Running errands and visiting stores are opportunities to teach your children about money and involve them in the buying process. For example, check for weekly in-store specials or go through flyers together to look for coupons for items on your shopping list. Check the cost of similar products made by different brands and discuss the differences.
Giving your child an allowance can be a good way to teach basic money management skills. It can also promote good decisions about spending and saving.
It is up to you to decide whether or not to give your child an allowance. Make your decision based on what you think is best for your child and your situation.
If you decide to give your child an allowance
- Decide on the amount. Only give an amount you are comfortable with and can afford. The amount itself is less important than the overall goal: teaching your child the basics of money management.
Choose an amount that is appropriate for your child’s age. Consider starting with a small amount as soon as your child is old enough to understand the connection between money and purchases. Talk with other parents and find out how much they are giving.
For example, a young child could receive $1.00 per week, which you can increase as he or she gets older.
- Decide whether it should be earned or given. Some families believe that children learn the value of work and how to earn money by doing something and getting paid for it.
Others prefer not to link allowance to chores and prefer to use it mainly as a tool for teaching financial habits and values.
Both options have pros and cons, so you will need to decide what is best for your family.
- Be clear. If the allowance is linked to chores, make sure your children know what chores they are doing for pay and what is expected for simply being part of a family.
- Be consistent. Try to give the money to your child on the same day every week. This allows your child to plan so that he or she can learn to budget and save for future expenses.
Needs versus wants
Understanding the difference between needs and wants is the foundation of good money management skills.
- Needs: Explain to your child that the income you receive must first be used to pay for basic needs such as housing, food and clothing for the entire family.
- Wants: Other expenses, such as restaurant meals and family vacations, are wants, and can only be paid for if there is enough money left after paying for your family’s needs.
Knowing the difference between needs and wants will help your child understand:
- that they must learn how to live within their means
- that they cannot spend all of their money only on the things they want
- the importance of saving for the things they want.
Set a good example
Children learn a lot by watching and imitating their parents. By modelling good spending and saving behaviour, you will encourage your children to pick up your good financial habits. To show them how to manage money responsibly:
- try not to buy things unless you can afford them
- explain how you are planning to pay or save for major purchases or activities
- talk to your children about saving and budgeting.
Practise everyday financial literacy
Everyday activities can be used to provide practical lessons in money management. When you are out shopping or running errands, talk about the products you are about to buy. For example:
- How do you decide which products to buy?
- Why did you buy, or not buy, the sale item?
- Why might you want to buy an item individually or buy it in bulk?
Talk about where money comes from
For many children, debit cards and automated banking machines (ABMs) may seem like unlimited sources of cash.
Key points to discuss:
- Debit cards and ABMs are not sources of free money. Your debit card is linked to your chequing or savings account. The debit card allows you to pay for a purchase or withdraw some of the money in the account from an ABM.
- The money supply is limited. There is only so much money in your account. This money comes from income you receive from your employer, from social benefits such as the Canada Child Tax Benefit or other sources.
If your children are old enough to understand, show them your online banking transactions. Point out how cash withdrawals and debit card purchases reduce the balance in your account.
- Think before you act. Before your children spend their money, encourage them to think about the effect the purchase will have on their savings goals. Try using a visual aid such as a coloured chart to track spending for things like treats or downloadable songs.
They can use another chart to mark progress made towards savings goals.