From lemonade stands to RESPs: Teaching your children financial literacy
It’s community yard sale season and there are tons of treats and treasures on display. For children, not only is it a chance to score a new toy or trinket on the cheap, it’s also an opportunity to put into practice what they’ve learned about money. Preschoolers are selling baked goods to raise money for their daycare, school-age children are running lemonade stands and tweens are bargain hunting with their savings safely tucked away in their backpacks.
How did these children get here? With the guidance and support of their parents.
“A lot of parents believe in the importance of teaching kids about money, but they’re not really sure when to start, what to say and how to teach it,” says David Yan, vice president of wealth management at Envision Financial. “One of the first things I tell parents is start early and be consistent. Teaching kids about money isn’t a one-time thing—it’s a lifelong exercise.”
With Canadian consumer debt reaching new heights (and continuing to climb), it’s never been more important to teach children financial literacy. If your finances aren’t in order, it’s an excellent time to meet with a financial adviser who can set you on the right path. If you’re not doing it for yourself, do it for your kids, Yan urges, adding it’s always a good idea to speak with an adviser around major life events, such as attending post-secondary school, buying a home and starting a family.
The earlier you start talking about money, the better, but Yan says conversations and activities should be underway by age five. The new British Columbia school curriculum includes teaching children financial concepts as early as kindergarten, so what you talk about at home will be reinforced in the classroom. If your child is older and you haven’t yet started, don’t worry, Yan says, you can make up for lost time.
Looking for ideas on how to get started? Here are some tips on what you can do at every age to set up your child for success.
Soon after birth
Even before your children are old enough to understand financial concepts, you can lay some groundwork by meeting with a financial adviser and opening a registered education savings plan (RESP), an investment account that allows you to save for your child’s post-secondary education. You don’t need a lot of money to open an RESP; in fact, you don’t need any at all. Low-income families can qualify for the Canada Learning Bond, which contributes $500 to their RESP when they open an account and $100 every subsequent year. All families can benefit from the Canada Education Savings Grant, in which the government contributes 20 cents on every dollar up to a lifetime maximum of $7,200. And in British Columbia, children born in or after 2006 are eligible for a one-time Training and Education Savings Grant of $ 1,200 when they turn six. “We strongly encourage parents to open RESPs soon after their children are born,” Yan says. “The grants are free money.”
Preschoolers can start learning about finances through role-playing games like pretending they’re shopping or running a business, and using play money. Young children also enjoy examining the colourful array of Canadian bills and the pictures on coins. You can make up stories using the scenes on coins or have your child sort them by type. You can also teach them about the different values—be ready to explain why the nickel is bigger than the dime but worth less! When you’re out shopping, use cash rather than cards and narrate what you’re doing. For example: “The ice cream costs $6. I’m giving the cashier $10 and she’s giving me $4 back.” Some kids really enjoy handing over the cash and collecting (and keeping) the change.
When children start school, Yan suggests teaching them the critical concept of putting their money into three categories: save, spend and share. Saving is for the future, spending is for purchases in the next couple of months and sharing can be for charitable causes or buying gifts for friends and loved ones. Yan recommends giving young children three piggy banks, jars or boxes to organize their money in this manner. To do this, they will need money, so Yan suggests starting an allowance around age five. If you give your child $6/week, for example, a toonie can go in each jar. Children who are really motivated to save may want to have a toonie birthday party and collect cash instead of gifts.
When children get older, you can open a bank account for them and they can periodically deposit their savings. Yan recommends children go to the teller to do this themselves, and spend some time examining their statements. This is the perfect time to teach them about interest. Older children can also get a bank card and start using the machine, an exciting activity that makes them feel very grown up.
Another important concept is teaching children the difference between needs and wants. You can talk to them about this in the context of purchases for them. For example, they need practical shoes for school, but they want those sparkly light-up sneakers with wheels because they’re cool. Children also need to understand that they have a limited amount of money to spend and therefore choices to make. Saving up and deciding between a new Lego set or Pokémon cards, for example, or setting a goal for a specific big-ticket item can help drive home this message. You can also model good habits by talking about what you’re saving for; instead of just buying a new TV, show your kids that you’re saving for it over several months. “Kids learn a lot from what parents do,” Yan says. “We’re role models without knowing about it.”
As children enter their preteens years, Yan recommends helping them create a budget. This can be done for a fun event like a birthday party. At this age, children are also ready to learn about household expenses, which you can help them do by showing them the bills and the family budget. This is a good opportunity to talk about the cost of services like electricity—and asking them (again) to be sure to turn off the lights when they leave a room.
Parents may also want to look for programs that promote financial literacy. For example, some schools offer students the opportunity to participate in the PowerPlay Young Entrepreneurs program, in which they create their own product and market it to their peers. Envision has sponsored and facilitated this program in some schools, and Yan says it gives kids a fun opportunity to learn practical money management skills. “It a great program and the kids have really enjoyed it,” he says, adding that donating a portion of proceeds to a charity teaches the importance of giving back to the community. “It’s about teaching kids about values and the value of giving back.”
“As part of building a strong foundation of mathematical understanding and skills for every student, explicit financial components have been added to the curriculum, starting in Kindergarten.”
“Even the kindergarten curriculum begins with identifying the value of coins and role-playing financial transactions (using coins and whole numbers), while integrating the distinction between wants and needs.”