Good personal finance depends on strong habits. Developing such habits takes some guidance along the right path.
GoodCheddar wants to provides some basics on financial literacy to pass along, and suggest how you go about it.
Financial Literacy Basics
Your approach to teaching your kids about saving money and how it works may need adjusting and this can depend on their age.
It’s not a one size fits all scenario if you hope to be effective at all. While young children might be involved with counting games, teens might create a business to get involved.
The basics of Financial Literacy are more than learning a few principles, they should be tailored to your audience, especially if introducing the idea to kids.
Early Money Lessons
Your children will learn basic math skills in school, but this doesn’t teach them about money. Teaching your kids about budgeting, saving and similar will allow them to make smart financial decisions and develop specific skills they can always use.
As the provider of these lessons, there are two things that can help make your efforts more effective. Choosing age-appropriate lessons when teaching, and finding ways to integrate financial literacy for using in a kid’s everyday life.
Kids up to 6 years old
It’s probably never too early to teach kids about money, but the ideal age might be around 4 years old to start.
Even at this age they can grasp things such as exchanging money for goods or services, and how it has value.
A smart start is giving your child a piggy bank, which they can use to save change you may give them for small tasks.
These are the building blocks of learning while earning, and provides the foundation for basic money concepts.
You can setup an imaginary shop that uses various items from around your home to introduce concepts like making a purchase. This can include real or pretend money, and you can also provide a pretend credit card to tap or swipe.
You can also bring your child to the grocery store and explain things when with the cashier, such as how you selected the groceries, brought them to the cashier, and now you are paying for them with your bank account or credit card.
A real world experience to help grasp things can be more useful to some than an imaginary shop, and will probably lead to more questions, which is a good thing.
Kids from 7 to 9 years old
Children of this age are obviously more advanced than those 6 or younger, and that requires a different strategy.
In your quest to teach financial literacy to this age group, you want to help them with independent thinking and making smart decisions.
This is a good age to offer an allowance for chores that are done around the house.
This can also be the start of learning about saving, tracking, and creating financial goals such as saving for a toy.
As they learn that money does not grow on trees, they’ll develop and appreciation for hard earned dollars along with some independence.
The timing is right to try graduating from a piggy bank to savings jars, which can be looked at as a variation of the envelop method for saving.
This can also be the right time for learning about comparison shopping, how a budget works and sticking to it.
If your kids spend time online, this can be a good age to start discussing online purchases and how some games try to convince you to ‘level up’ through a purchase at times too.
Kids from 10 to 12 years old
At this age it’s time for a bit more responsibility. That means they should have a few more tasks or chores, and a raise.
With more chores comes more responsibility, and this provides a way to boost their savings and reach goals quicker.
Continue to teach online safety, and not just how it is related to money. Talk about privacy, password security, and being smart online.
Also talk about thinking for themselves, questioning the validity of online sources (like social media finance advice) and doing their own due diligence at times.
At this age its a good time to introduce crunching the numbers and teach them how to create a basic spreadsheet to track and manage their finances.
Having regular discussions about money at the dinner table can be a teachable moment to explore as well.
Kids from 13 to 16 years old
Teens of this age will start to crave more independence and their financial literacy skills are important to their development.
As kids progress through their teen years their wants tend to increase. Girls may want fashion and/or makeup, and boys may want video games or something else.
Many will start thinking about a car when getting into their mid teens, and that’s an opportunity to plan ahead with their financial education.
As they enter their teens you might mention that you know their growing up and talk to them about saving money.
If you’re in a position to do so financially, you could suggest that you’ll match every dollar they save by year end for motivation and incentive.
This is also a good age to propose that they can look for a job to help them save even more, which is a good idea around this age.
Some may advise that they start to help paying bills to help develop their money mindset.
As an exercise, you could talk about your child creating a fictional business. Don’t focus too much on the specifics to start and keep it simple.
Just enough detail to answer some questions and keep their interest, but focus more on the numbers.
An example being, your business sells apples, which you buy for 7 cents each and sell for 15 cents each. If you sold 82 apples in a week, what is your profit?
At this age, you can also assist them with a new tracking and budgeting options that are a little more advanced.
This also creates another opportunity, where you can review the spending together and talk about goals.
You might also have a discussion about how a fear of missing out (Fomo) and living beyond your means to keep up with others can be another way to create debt that’s best avoided.
While it is unlikely needed in their teens, it’s also wise to preach about the importance of having an emergency fund. Remind them it isn’t if, but when they need it, they’ll be glad to have one.
It’s also a possibility that you may want to talk about credit cards and being responsible with them. Possibly even getting them either a secure or unsecured card.
It’s often credit cards that have created these types of issues, and what you teach your kids in their early teens can go a long way towards their financial literacy.
One other valuable lesson to pass on is that they learn early to avoid comparing salaries and trying to keep up with others that might earn more since this can be a path that leads to credit card debt later for young adults.
Smart Start for Kids
There are special bank accounts and various apps and options to look into as explore teaching your kids about money and financial literacy.
It’s wise to compare options. Just because you’re with one bank, it doesn’t mean your kids should be.
Banks know the potential lifetime value of a new account holder and offer cash bonuses for signing up that can be hundreds of dollars.
But also look beyond the bonus to compare the terms and conditions that apply.
Here are just a few banking and finance options for kids to get you started.
- RBC Leo’s Young Savers Account
- CIBC Smart Start
- Scotiabank Getting There Savings Program
- TD Youth Banking
- BMO Kids Account
- Tangerine Children’s Saving Account