When should I start talking to my child about money?

May 26th, 2021 post featured image

The United Nations dubbed June 1 the Global Day of Parents, a day “to appreciate all parents in all parts of the world for their selfless commitment to children and their lifelong sacrifice towards nurturing this relationship.” [1]

Since we are fast approaching the first of June, it’s a nice time to acknowledge how many parents in Canada are doing their best to raise children who not only feel loved and safe, but also equipped with the tools necessary to succeed in life. In the hierarchy of needs, financial literacy doesn’t compete with things like food/water security and adequate shelter, but it comes close in that it can provide security and stability.

A 2020 publication from the OECD Programme for International Student Assessment (PISA) found that across OECD countries/economies, 94% of students say they get information about money matters from their parents.[2] The same study determined Canadian students rank among the highest in the world in financial literacy, after Estonia and Finland.

These results are telling: lots of Canadian parents see the value in helping their children cultivate a financially secure future for themselves. “Given their importance in their children’s financial education, it is important that parents themselves are financially literate, and transmit accurate and appropriate information.”[3]

When it comes to financial competency, Canada is by no means flagging on the global stage. We have some of the highest financial literacy rates in the world – about 68% of adults.[4] But despite this, the 2020 Review of Financial Literacy Research in Canada found that we still have plenty of room for improvement: “Even before the COVID-19 health crisis, too few Canadians had a budget, debt levels were exceptionally high, and many were not doing enough to secure their vision of a comfortable retirement.”

Financial literacy is a skill that requires lifelong cultivation, beginning in childhood. For parents, the trick is finding age-appropriate ways of introducing the concepts of money, budgeting, savings and debt to their kids and then creating opportunities to hone those skills, day-to-day. The following are some ideas of when and how to introduce basic financial concepts to children as they grow.

1. Involve them in daily household management activities

Young kids know all about identifying, counting and playing pretend and parents can easily integrate commerce into these regular games. Practice counting coins and learning to distinguish one from another. Gather up some household items and take a pretend trip to a grocery store together. Imagine you are visiting a restaurant at dinner time. The act of paying or settling a cheque will help them learn how money is involved in these daily activities while making it fun and predictable.

When they get a little bit older and have a relatively good grasp on basic math skills (addition and subtraction), opening a savings account at a bank and implementing an allowance can help facilitate conversations about saving – how people do it, how often, and why.

2. Introduce them to financial tools and the idea that money = time

Pre-teens and teens can help out with couponing and learning about comparison shopping. Taking grocery trips together and weighing the pros/cons of no-name vs. brand name products not only teaches savvy shopping habits, but ties nicely into discussions about budgeting and living within their means.

Shopping trips or visits to the bank are also opportunities to explain how you pay for things. Debit cards, credit cards… do kids know the difference? Explain how you buy things and why you choose to do so. Being transparent about your own finances and strategies can encourage them to do the same with you as they get older.

Young teens often do odd-jobs or household chores to earn money and they’re on the cusp of getting their first “real” job. Learning how to create and stick to a budget is one of the most important lessons a parent can impart on their child. Many adults still have a hard time budgeting, so the earlier kids learn about it, the better.

Taking the time to sit down and explain the difference between “wants” and “needs” is important and so is helping kids understand just how long they would have to work in order to afford these different things.

3. Looking ahead and planning for the future

Older teenagers about to enter adulthood likely have some experience with making and spending money. As they get ready to graduate and potentially seek some type of post-secondary education, it’s important parents ensure they have a solid grasp of saving for different goals. Near-term or consumable savings are necessary to pay for fun items, like a new video game console.

Mid-term goals are for the near-future goals like travelling, school, or car expenses. Longer-term savings are generally for things about 10 years away so, depending on where they see themselves, those goals could involve moving out, buying a home or even having a child of their own.

You must be 18 to open a TFSA account so taking adult children to the bank or to your own financial advisor is a good way to set them up for future savings. In addition to helping them establish a savings plan, this might be a great opportunity to explain the similarities and differences between TFSAs and RRSPs and answer any questions they may have.

Similarly, this could also be a good time to make sure they have the most suitable type of bank account and an opportunity to explain account fees, overdraft protection and how interest works.

Parents are instrumental to ensuring their children, the next generation, are adequately prepared for the future. This is especially true right now:

In some countries, future generations will probably bear more financial risks during their lifetime than the current adult population, due to factors such as increased life expectancy, less welfare protection and more uncertainty in retirement income due to changing pension regimes. Variable employment prospects and the potential for economic instability as a result of digitalisation, technological change, climate change, pandemics, globalisation and changes in the nature of work may also contribute to financial uncertainty. [5]

With the future comes a lot of uncertainty but feeling competent and in control of your finances goes a long way when it comes to being ready for the unexpected.

Canadian Millennials and Gen Z are reportedly more concerned now about their financial futures than they were before the pandemic. Young people are looking for ways to safeguard their financial futures and that means there is lots of opportunity for the older adults in their lives to provide guidance. It also means that the young adults from these generations might be even more inclined to make financial literacy a priority in their own kids’ lives.

For advice on how to set kids up for financial success, connect with us.

[1] https://en.wikipedia.org/wiki/Parents%27_Day

[2] https://www.oecd.org/media/oecdorg/satellitesites/pisa/PISA-2018-financial-literacy.pdf

[3] https://read.oecd-ilibrary.org/education/pisa-2018-results-volume-iv_48ebd1ba-en#page143

[4] https://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf?x49160

[5] https://read.oecd-ilibrary.org/education/pisa-2018-results-volume-iv_48ebd1ba-en#page36