Home   >   Family Finances   >   Raise Financially Savvy Children

Raise Financially Savvy Children

By on August 23, 2022

A couple of months ago, I picked up a pretty cool item from the liquidation shelf at a store: a large lidded glass jar featuring a coin slot and digital display– a bank that counted your money for you. I knew this would be an ideal gift for my five-year-old son, who loves turning his play kitchen into a working restaurant/gift store, complete with a kiddie cash register packed with real money supplied by grandparents’ pocket change. Now, his favourite pastime is literally watching his money grow. “Look, Mommy! I have 79 dollars! What should I do with it?”

Good question.

Like many parents, I’m a bit baffled when it comes to teaching my boy about money: how to save it, invest it, spend it and share it.

Michael Preto, a certified financial planner with Investors Group, stresses it’s never too early to teach kids good financial habits. “In my job, I’m constantly trying to change bad habits, like racking up credit card debt and spending more than you make, into good habits,” he explains. “If you can teach your children about saving money and not spending more than they earn, you’re setting the foundation for good financial health in the future, and that makes a huge difference.”

Money signs
Preto adds that while it’s important that young children understand the value of a dollar or yen, it’s a hard concept for them to grasp. “It’s easier to teach them how to shop wisely when they’re younger, and even pre-schoolers are old enough to learn the basics.”

Most children have no idea how much things cost, and while there’s no need to tell your six-year-old how much interest you’re paying on your mortgage, you can introduce important discussions about money by explaining what comparison shopping is, or how using coupons can save a bundle at the grocery store.

Preto suggests that parents should also model good financial behaviour. “If kids see that their parents are smart with money, they have a better chance of doing so themselves. People that are in debt didn’t learn that from TV,” he says. “I’ve seen adults who carry tens of thousands of yen on their credit cards; they pay huge amount of money a month in interest alone, and because they’re unable to pay off the balance, this cycle can continue for years.”

Big ticket spending
Karen Bowman, mom of Kylee, 7, and Connor, 3, believes that “teaching our children how to manage money responsibly is an important lesson. We help Kylee make informed decisions about money, and we also talk to her about financial priorities when her and Connor want ‘big ticket’ items that are just not in the budget.”

When Jennifer Reinhard’s seven-year-old twins Joshua and Julia and their sister Jacqueline, 5, wanted a Nintendo DS, they were told they’d have to pay for it themselves. “They agreed and started to save.  This was a great opportunity to introduce the beginnings of money and value,” says Reinhard.  “The kids saved birthday, Christmas and ‘Tooth Fairy’ money, and did random chores around the house.  It took them just over a year to have enough money to buy their DS, but they did it, and they were so incredibly proud of their accomplishment.”

Reinhard feels that raising her children “to understand that toys, books or clothes are just material objects that can be replaced has paved a willingness to share, be more generous with their belongings and not to become obsessive or greedy.  Because our children all have birthdays in August, they share all the toys they receive.”

Another way to help your child learn how to manage her money is to give her a budget for back to school or Christmas spending. “It’s a good tool to help children learn to set limits. Assign each child a budget and let her decide what to buy within the set amount,” says Preto.

Entrepreneurial instinct
Preto believes children can become financially savvy from a young age, which can lead to increased wealth down the line. If your child is old enough to baby-sit or dog-sit, he or she is old enough to understand how to save and invest earned money. “If your child starts saving through anything with a compound rate of return, the effect is dramatic and huge,” says Preto. “For example, if a kid saves $50 a month and earns 6% interest, in 25 years, he’ll have $35,000. In 35 years, he’ll have $71,000 and in 45 years, he’ll have $138,000, all because of the compounding effect. I’ve sat down with teenagers, and they’re blown away by the compounding effect, because it’s not taught in school. If you start doing this when you’re young, you’re setting yourself up for a great future.”

Paying it forward
Teaching children about money also means encouraging them to give back, adds Bowman. “Kylee has been donating money to support the BC Professional Fire Fighters’ Burn Fund Building since she was in kindergarten. Whenever she receives money for her birthday or holidays, she’s given the choice of what to do with it. Sometimes, she keeps some to buy something special, with the other half going to a charity. But most times, she happily donates the entire amount. Her school does a lot of outreach programs that help teach the kids how to be charitable.”

It’s never too late
If your own spending habits need a serious overhaul, why not get everyone involved in sticking to a new family budget? Talk about ‘needs‘ versus ‘wants‘ and figure out ways each member can save money: Encourage your children to cut coupons for grocery shopping, let them each choose one extra-curricular activity this season instead of three, or make a game out of looking through store flyers to figure out which one has the most items on sale this week.

These days, if I pick up an item when we’re shopping together, my son always asks me if it’s on sale. If it’s not, he’ll say, “Let’s wait before you buy it, Mommy.” Wise words, indeed.

About Wendy Helfenbaum