Tips for teaching your kids about money management

In today’s fast-paced financial world, the adage “knowledge is power” is especially true when it comes to teaching our kids about money.

As a parent, you may reflect on your own financial education, or the lack thereof, and see a gap that schools might not be filling.

One of the best ways to encourage financial literacy in your kids is to turn everyday moments into valuable lessons on money management. From the basic principles of earning and saving to more complex concepts like investing and compound interest, I’ll show you some simple lessons you can teach your kids about money at home.

CREATING A FOUNDATION FOR FINANCIAL LITERACY

Unfortunately, our public schools have had a reputation for falling short when it comes to teaching financial literacy. As a result, a growing number of young Canadians are relying on self-education to learn about money and finances.

The tide appears to be changing, though.

In 2019, Ontario introduced a new curriculum requiring Grade 10 students to take financial literacy classes. In late 2024, high school students in Regina will follow suit and will be required to pass a financial literacy class to graduate.

SIMPLE LESSONS ABOUT MONEY

I think it’s great that a growing number of public schools are implementing financial literacy courses for high school students. However, parents can start teaching their younger kids about money far earlier.

Teaching your young ones basic concepts like saving and managing money, budgeting, and learning to differentiate between needs and wants will go a long way to creating a solid foundation.

That way, they will notice them a lot quicker when they get to high school and start learning more advanced concepts. Here are some lessons you can start teaching your younger kids about money to give them a head start.

USE AN ALLOWANCE AS A LEARNING TOOL

Allowances aren’t just pocket money; they’re a child’s first foray into the world of personal finance. By providing a regular allowance, parents can teach kids about earning, saving and budgeting.

Start by tying the allowance to chores or responsibilities. This mirrors the concept of earning a wage.

Encourage them to manage this money and make their own decisions about spending and saving.

Make sure they understand the consequences and rewards associated with the different actions they may take with the money.

ENCOURAGE GOAL-ORIENTED SAVING AND INVESTING

Teaching kids to save with a purpose cultivates a mindset of goal-oriented financial planning.

Encourage them to set a savings goal such as:

• 
  a new toy;
• 
  a new video game; or
• 
  a fun activity (movie theatre, arcade, mall, etc.) 

Then, help them calculate how much they need to save each week from their allowance or gift money to reach this goal.

This practice instils patience, discipline and a sense of accomplishment once the goal is achieved. It’s also an excellent practical lesson in delayed gratification.

TEACH THEM HOW TO CREATE A BUDGET

According to a recent report by RBC, 75 per cent of teens are highly motivated to become financially independent and one of the cornerstones is proper budgeting.

Before your child is ready to move out of the house, pay rent and bills, and stock their pantry with groceries, they need to understand the basic concepts of creating, and sticking to, a budget.

If you’re giving your child an allowance, consider having them start paying for some of their own expenses.

Some things you can encourage your child to pick up the tab for include:

• 
  their phone bill;
• 
  special snacks that they want;
• 
  extra dessert items when eating out; and
• 
  personal activities.

This will encourage a saving mindset and teach your child that their money isn’t a bottomless resource. It emphasizes the need to allocate certain amounts for specific expenses.

DIFFERENTIATE BETWEEN NEEDS AND WANTS

Distinguishing between needs and wants is a fundamental financial lesson. Guide your kids by explaining that needs, like healthy food, are essentials for living while wants, like toys or sugary snacks, are extras for enjoyment.

Use real-life scenarios, like grocery shopping, to illustrate this concept.

Ask them to categorize items into needs and wants by looking through the items in the shopping cart. This exercise not only sharpens their decision-making skills but also fosters an early understanding of prioritizing expenses, a skill that will serve them well throughout life.

TEACHING COMPOUND INTEREST

Introducing kids to the concept of compound interest can be a game-changer.

Break it down with a simple example: If they save a certain amount and it earns interest, the next interest calculation will be on the new total, not just the original amount.

You can illustrate this with a piggy bank or a basic spreadsheet showing how money grows over months or years.

You can also use their allowance as a tool to teach them about interest. Give them the option to allow you to hold their allowance for a specific amount of time with the condition that it earns interest. When the time has elapsed, pay them their saved allowance with the extra interest and see how excited they get.

FINANCIAL LITERACY STARTS AT HOME

At the end of the day, what you say isn’t as important as what you do. Kids inevitably follow in their parents footsteps, so try your best to set a good example in addition to the lessons you’re providing.

This starts with maintaining a good budget for your home. Once you make your budget, consider breaking it down and explaining it to your child so they understand and see the steps you’re taking.

Not sure where to start? Keep reading for some great tips on how to slash your monthly budget!