Educating Your Children About Money

Educating Your Children About Money

We all know that money alone doesn’t buy happiness. Money can provide you with a sense of financial security, however, which in turn allows you to feel comfortable and gives you the opportunity to pursue other things that make you happy. Rather than worrying about how you are going to scrounge up next month’s rent, wouldn’t you rather daydream about where you are going to go on your next family vacation? Developing healthy financial habits can allow you to do this. The earlier you start, the better.

Teaching your children about money management early in life can provide them with the basic understanding and skills to engage in smart financial behaviour and set themselves up for a financially secure future. While conversations surrounding money tend to be taboo in our society, the importance of such conversations is undeniable. Here are some simple tips for how you can begin talking to your children about money.
 
The earlier, the better 

As with retirement saving, investing, and most other finance-related decisions, it is best to start early. The earlier you begin introducing simple financial concepts such as how money is earned, how goods are purchased, and how your wealth accumulates through saving, the more ingrained the lessons will become in their minds. The more ingrained the lessons are, the more likely they will translate to behaviour.

Further, educating your child about money from a young age will not only teach healthy financial habits, but will also assist in developing other important life skills such as goal-setting, and instil values such as hard work. By teaching your children the basic workings of money (i.e. things are bought with money that you work hard to earn), the importance of determination, perseverance and commitment can be communicated. This can even result in the development of a sense of gratitude for you and all you provide for them, as well.
 
Age-appropriate teaching 

With all the infinite things that can be discussed when it comes to money, where do you start?

Practice age-appropriate teaching. For example, a five-year-old child doesn’t typically understand, nor care to know about dividends and interest rates. Rather, they would likely care to know what needs to be done to get their hands on that new shiny toy they’ve been eyeing. Which toy should they buy? How much does it cost?

This government of Canada website breaks down a basic guideline for the different topics that should be introduced at the different stages of your child’s life. By the time they turn 18 and are ready to fly the nest, your child should have the basic understanding of student loans, debt management, and the general stock market, as well as possess the practical skills to effectively manage a checking and savings account, live within a realistic budget, and work towards their savings goals.
 
Goal-setting: think short & long term
Goal-setting is foundational to learning how to manage your money. If we don’t have goals in mind, what are we working towards? SMART is an acronym you can use to guide you in teaching your children about effective goal setting.

Specific (simple, sensible, significant)
Measurable (meaningful, motivating)
Achievable (agreed, attainable)
Relevant (reasonable, realistic, results-based)
Time bound (time-based, timely, time-sensitive)

Work with your children to develop their goals such that they possess these SMART characteristics. This framework is widely used and has been proven to be effective in aligning your current actions with your future aspirations.

Encourage your children to create both short-term and long-term goals. Short term goals are just as important as long term goals as they act as reminders to your child that hard work really does pay off.  When your child reaches their short-term goal and experiences the reward, they will be positively reinforced to continue the behaviour that got them to that place. Short term goals establish good savings habits and keep them motivated.
 
Make them earn their money
While your eight-year-old child cannot legally be employed in the formal labour market, this doesn`t necessarily mean that they should be granted free access to your pockets. By making your children earn money rather than simply giving them money, they will gain a better understanding of the value of money and the importance of hard work.
​
You can do this by establishing household tasks or chores that your kids can complete to earn more money. By separating these tasks into different categories, you can attribute different compensation levels to the tasks depending on the difficulty and time it takes to complete the task – just like in the real world. For example, some simple tasks such as unloading the dishwasher or making the bed can be tasks that are expected to be completed because they are a member of the family. An activity like mowing the lawn can receive some compensation, and other bigger tasks such as cleaning out the garage can be rewarded with an even higher level of pay.

This form of compensation shows your child the relationship between work and reward while teaching them the value of money.
 
Grant your child some autonomy
While you are guiding your children on their exploration of the world of money management, it is also important to grant them a degree of autonomy. Having financial autonomy from a young age translates into a higher degree of financial literacy, financial independence and better money management in the future.

To grant your children some autonomy, encourage them to make their own decisions regarding money. Bring them to your bank branch to open their own account, encourage them to ask questions to the branch representative, and allow them to make their own choices about what they want to spend their earned money on. Whether these decisions are good or poor, your children will learn from their mistakes and begin to understand the finite nature of money, trade-offs, delayed gratification, and the importance of saving.  If you think about it too, it’s better for them to make mistakes when they’re younger and have a much smaller amount of money, than it is for rudimentary mistakes to be made when they have access to credit cards.

Involving them in every process provides them with the opportunity to familiarize themselves with various money-related topics, teaches personal responsibility and allows them to become financially empowered.
 
Philanthropy from a young age 
Educating your children about money also gives you a platform to demonstrate the importance of philanthropy, as well. The earlier that children are introduced to the concept of charity, the more ingrained it will become in their understanding of how to manage their money.
 
Have fun with it
While it doesn’t necessarily sound like a very fun thing to do, teaching your kids about money doesn’t have to be boring. Turn daily activities such as going to the bank, choosing what to buy at the grocery store, or taking money out of an ATM, into teaching moments. This will make them feel grown-up and enhance their confidence as they learn how to do simple money-related tasks.

Many games that your children already likely play, such as ‘store’ or ‘restaurant’ can also be vehicles of teaching.
Putting your child in charge of running your yard sale is another great way to teach them about money. Work with them to set appropriate prices for items, deal with haggling customers, and handle money. Letting them take the lead is a fantastic way for them to learn and grow their financial abilities (and a great way for you to periodically declutter your home).
 
As a parent, you are provided with this unique challenge that is both daunting and exciting. Giving your children the gift of financial knowledge from an early age will give them the tools they need to reach their ultimate goals.