By Michael Callahan | ModernAdvisor
Q: Hi, my wife and I have just had our second child – Our son is 4 years old, and our daughter is a newborn. One of the biggest priorities for us is that we give our kids some good skills for making financial decisions in life. We want to help our kids in every way possible, but we certainly don’t want to spoil them either. I guess what I’m saying is, we want to do our best to help teach them good financial habits from an early age, and to raise our kids to be smart with money. Do you have any advice for us?
A: Great question! Financial decisions made early in life play a very significant role in determining future financial success. Yet, our schools teach virtually nothing in terms of basic financial literacy and common sense money management skills. So what can you do to help your kids get off on the right foot? Let’s take a look at our Top 5 suggestions for giving your children the skills they need for financial success in life.
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Top 5 Tips: Raise Financially Savvy Kids
1 Start the money conversations early.
Granted, you don’t necessarily want to start talking to your 2 year old about RRSPs. But from a very young age, children begin to understand basic numeracy and basic concepts such as “more” and “less”. Do you have a piggy bank or jar of coins on your dresser? Ask your child to count how many coins, and eventually to count how much money is in the jar.
2 Let your kids make spending decisions, and let them make mistakes.
We all have to learn from our mistakes. However, it’s much better to learn the consequences of poor financial decisions when smaller amounts of money are at stake. When I was a kid, I remember we went to a big flea market, and I was given $20 to spend however I wanted. I bought the first $20 item I saw within 10 minutes. Of course, this resulted in pure agony as we had another 5 hours left and I was broke. I learned a very important lesson that day – the purchase should have been thought out more carefully, because when the money is gone, it’s gone for good.
3 Get your kids involved in family purchases.
Are you planning to purchase a new car, new house, new appliances, or a family vacation? Encourage your children to be a part of the process. By doing so, you can teach them the importance of doing some research before making important purchases. For everyday type purchases, such as grocery shopping, engage your kids in the process, and teach them how to compare various products and prices. By exposing your children to the true costs associated with various items, they’ll begin to form a more realistic view, and begin to better appreciate the sacrifice required to obtain those items.
4 Put your kids to work.
First and foremost, the work should be appropriately matched to the child’s age and level of responsibility – you wouldn’t want to ask an 8 year old to get up on the roof and clean out the gutters. Instead of giving your kids an allowance (money for nothing), it’s important to teach your kids the basic cause and effect relationship between working and earning money. So what are some of the types of work you can require of your children? Household chores are great starting point. For example, you can ask your kids to clean their bedrooms, clean the kitchen, vacuum or sweep the floors, help fold clothes after doing laundry, rake the leaves, wash the car, etc. Not only will this help you around the house, it also teaches your children that money comes from working, and not from your pocket.
5 Make regular savings a habit.
It may sound simple, but this is perhaps the most important behaviour of all. When children learn to create a personal budget that includes paying themselves first, they develop a mindset of savings. On the other hand, children who don’t learn to save will often fall into a pattern of borrowing every time they need to buy something. This “cycle of debt” can have disastrous consequences in adulthood. However, by learning to save regularly, kids also learn the concept of delated gratification – good things come to those who wait.
Bottom Line
Teaching your children some good common sense money management skills can help put them on a path for financial success. From regular everyday shopping, to complex decisions such as whether to rent or buy a house, basic financial literacy and discipline is the key to making sound, informed life decisions.
