SMART MONEY: Want kids to be good with their money? Talk to them about yours
If you’re a parent who spends first and thinks later, think again — your children are watching.
“A recent survey found that only a third of Canadians between the ages of 10 and 17 have regular talks with their parents about money and finances, and approximately 30% feel that their parents have financial problems,” says Tanya Wilson, investment advisor at Envision Financial.
“Children are very aware of their parents’ actions and are likely to repeat their parents’ spending habits. By talking to your children about your finances and setting a good example, you can help set them up for future financial success.”
Some tips, then, from Wilson and Envision:
• Let your kids in on the secret: Research has shown that 34% of children think there are financial secrets in their home. Wilson cautions that this is not a good place to start. “It can seem uncomfortable for some to let children in on their financial situation but it’s so important. When my clients’ children enter their mid-teens, I encourage them to bring their kids into our financial planning meetings. Then they can learn how their parents spend and save their money — it’s usually very eye opening.”
• Teach them the importance of budgeting: “In my meetings with clients, budgeting and cash flow management are some of the areas we review,” she says. “At the end of the meeting, I provide my clients’ children with a budget worksheet and show them how to create their own budget. The average teenager spends $100 a week and it’s good for them to understand where that money is going and that if they spend wisely, they can save money for the future.”
• Educate them on the importance of compounding: “Compounding is a simple concept, but one that many people fail to capitalize on. When my clients bring their children in, I talk to them about the importance of starting to save early versus later in life. When I show them the difference they’d have to save monthly for retirement if they started saving now compared to starting to save at age 45, they’re usually quite surprised.”
• Let them earn their money: “Some kids view allowance as an entitlement but I see a lot more success when the family is viewed as a household and an allowance is something you earn for contributing to that household,” says Wilson. “Instead of asking parents for money when they want to purchase something, children can do extra chores to earn that money. It really teaches children the connection between work and money.”
• Give the gift of financial literacy: Consider giving kids a book on financial literacy written for children, such as The Secret Life of Money — A Kid’s Guide to Cash by Kira Vermond and The Complete Guide to Personal Finance: For Teenagers by Tamsen Butler.