Financial literacy is one of the most important skills a person can have in navigating life. Recently, Canadian youth were named among the world’s top-performing students in terms of financial literacy, according to a global report published by the Organisation for Economic Co-operation and Development (OECD). But while schools are great at educating our children, these lessons in finance can (and should) start at home.
Let’s explore different teaching methods you can easily use at home with your little ones as they grow.
What an exciting time! Your kid might be still stumbling through their sentences, learning to tie their shoelaces or just got through their first book. Finances is the last thing on your mind right now. A recent study from Concordia University and the Montreal Neurological Institute suggests that children can grasp some financial concepts before the age of 7. It’s very important to teach kids at this age about the basic concepts of money. For starters, saving. Kids at this age won’t get a lot of money since they haven’t started working yet. However, they’ll probably be getting some money as birthday gifts from other family members or perhaps even a small allowance. If you give your children an allowance, consider tying it to chores to teach them about the importance of working and that money is earned and not simply given. As soon as your child is receiving an allowance they will need to put it somewhere. It’s never too early to take them to the bank to set up their own account!
Here’s a great method to teach your child to save from Forbes:
Have your child label three jars – “Saving,” “Spending” or “Sharing.” Every single time they receive money, split the money equally among the jars. Your child should use the spending jar for small purchases, like candy. Money in the sharing jar can be used to donate to a charity. The saving jar should be for more expensive items like toys or videogames.
It’s also pertinent teach them that items in stores cost money. Therefore, kids will need to learn that if they want something, they will need to go into their savings, take out that money, and spend it on what they desire. The older they get, the clearer this concept will become to them.
Middle School Aged
When your child is in middle school, you can focus your attention to the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.
Here’s a great way to teach your child about compound interest:
Have your child do some compound interest calculations on GetSmarterAboutMoney.ca. Here, they can see how much money they’ll earn if they invest a certain amount and it grows by a certain interest rate.
Another great lesson to teach them around this time is the importance of charitable giving. Some parents use the idea of ‘tithing’, which refers to giving/donating 10% to your church (or any other organization). You can help those who are less fortunate and it’s a powerful lesson.
High School Students and Beyond
Around this age your child may be doing odd jobs around the neighborhood for pay or gotten a part-time job. This is the time when your child is handed the key and gets full access to their youth account. This will tempt their patience and put your teaching to the test.
Have them download their banks app and monitor their online balance. This is when they need your guidance! Help them set long-term goals like the red sports car they’ve been dreaming of or that university UK experience. This can then turn into the down payment they need for their first home purchase.
Parents can also talk their children through the intricacies of credit cards once they have a debit card. Having them understand the downfalls of credit card debt is a huge lesson and one that they best learn before they go out into the real world!
This is also a great time to teach your child about student loans. A student loan is an investment in your future, but it does come with obligations, like interest. A lot of students treat student loans like free money, but in reality they will have to start paying the loan back once they’re done school.
Once your child goes to college they could be saddled with paying off credit card debt at the same time as paying their student loans. Plus, it could affect his or her credit history/score, which could make it difficult to buy a car, a home, or even to get a job. Also, sometimes prospective employers check credit scores. Help your children avoid credit card debt at all costs!
Maybe even get them to start their own taxes! Their situation might be extremely simple therefore making it very easy to file on their own! It’s an awesome way to help them become financially self-sufficient.
Finally, be more of a money and life counselor and less of a professor. Just be there to help them navigate the intricacies of life. They won’t say they need your guidance, but they do and will thank you for it in the long run.