With average household debt levels continuing to become a bigger and bigger issue, it seems as though the crux of the problem may be staring right up at us: financial literacy. More specifically, there needs to be more of it and it needs to start at home.
Raising money-smart kids is no easy feat, but if done right there’s a great opportunity to usher in the most financially savvy generation ever.
Financial literacy should start early. But there’s no reason to be intimidated. It’s easier than you think to teach basic, yet crucial, money lessons. Just a few small steps will go a long way into turning your little humans into fiscally responsible adults.
Introduce the concept of limited resources with an allowance
Adult money failures stem from one central issue that starts from the very beginning: a lack of understanding of scarcity.
In other words, you can have most of what you want but you can’t have everything you want! Kids don’t inherently know this, so it’s up to us to teach them.
The most straightforward way is to introduce an allowance. Give your child a set amount per week, and explain that they can choose what to buy based on what they value the most.
Take it one step further and encourage them to save a portion of each ‘paycheck.’ If your little one is feeling confused over overwhelmed with their newfound wealth, sit down with them on a weekly basis and set up a budget. This is a great way to introduce spending categories too!
Make it interactive
Kids learn best by doing, so why not sneak finance into their regular playtime? For instance, playing ‘store’ could help teach them the fundamentals of making purchases, using credit and paying tax.
Incorporating money into play will help your child become comfortable with these concepts at an early age. Games like Monopoly and Life are also a great way for kids to learn how money works.
When it comes to math homework, create problems that involve real world finance like paying back interest on a credit card or monthly car loan payments. These problems will help get your child comfortable with financial concepts.
Include them in basic household financial planning
Once your child is a bit older, give them a simplified version of your family budget and talk to them about what it takes to keep up household finances and save money.
This is a great opportunity to spend time together as a family and teach your kids about real world financial concepts.
Again, keep it interactive by discussing ways to save money in different categories. For instance, how much would cutting cable save the family in one year?
Guide them into the real world with a part-time job
Once your child is a teenager, it’s time to get working. There’s no better way to teach a child fiscal responsibility than to allow them to learn firsthand. By this stage, your child has become accustomed to financial concepts, and should be able to handle the responsibility that comes with a paycheck.
In any case, sit down with your child and reiterate concepts around budgeting and saving. Work with them to estimate their monthly income and create a budget that allows them to save while incorporating some fun.
Part-time work not only gives your child their first taste of work experience, but it also teaches them important financial lessons. This stage is pivotal, and how they treat their first dose of income will be determined largely on how you as their parent choose to educate them. So seize the opportunity to reinforce everything you’ve taught them leading to this point!
Teaching your kids about money doesn’t mean explaining RRSP limits to your 5-year-old. It means laying the foundation for saving, spending and investing using lessons that are easy to understand.
Playing shop, introducing an allowance or even introducing the idea of the stock market using companies they know are all good ways to get your children comfortable with financial concepts.
In doing so, you’ll rest easy knowing that your children won’t be blindsided when they’re hit with their first credit card bill or student loan repayment. They’ll feel confident in their ability to form a solid financial foundation. And they’ll have you to thank for it!
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