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There are few skills as universal and integral to a child’s upbringing than money management. Unfortunately, our public education system largely continues to ignore the importance of core financial skills – and many people still graduate without the basic knowledge needed to manage income, expenses, taxes, debt and other key responsibilities.
However, as a parent, you can still play a valuable role in raising an effective money manager. Your child is heavily impressionable to both your words and behaviours. The earlier you can begin to instill healthy financial concepts and habits, the more likely they will be to take a responsible, measured and calculated approach to their own finances as they grow and mature.
In fact, a University of Cambridge study found children as early as seven years old begin to understand the concept of money and its role in the exchange of goods and services. So, here are a few things you can begin doing now to guide your children down the road to long-term money management success.
Imparting financial concepts when children are young will provide a valuable head start to building productive savings habits, making wise spending decisions and practicing good overall financial hygiene.
A 2019 T. Rowe Price survey found a quarter (28%) of parents discussed money or financial topics with their children once a month or less, while almost two thirds (64%) did so at least once a month. The most frequently discussed topics included the importance of saving, responsible spending and how to earn money.
It is critical that children understand they need to
earn money. And, as a parent, your children need to understand that
you also earn money.
You can instill this concept by discussing your job with your children, giving them chores to do during the week and paying their allowance based on their completion. The T. Rowe Price survey found half (51%) of parents give an allowance which their children must earn. Fewer than one in five (17%) gave an allowance without any requirement. Nearly one third (30%) had started giving their children an allowance by age six.
Simple tasks, such as making their bed and putting their toys away positively reinforce the outcome (payment) to the action (work). Your children will learn to directly equate their compensation to their investment of both time and effort. When children are old enough, you can discuss getting a part time job and help them through the process of building a resume, applying, interviewing and interacting with potential employers.
Children need to understand the concept of scarcity – they will always have more things they want and need to spend their money on than can afford at once – and the role of planning in navigating its numerous challenges. Budgeting skills will help them visualize how they will spend their money, understand how to prioritize their savings and expenses and plan for large purchases.
A highly effective approach is to have your child label several jars to reflect their financial goals.
Spending – Have them set aside a certain amount for day to day purchases, such as a treat, going to the movies or purchasing a tune from the internet.
Saving – Encourage them to put money away for a big-ticket item they wish to buy, like a new bike or video game console.
Giving – Use this jar as an opportunity to teach your children the importance of giving back to the community. Instruct them to choose a local cause of charity they feel strongly about – local animal shelter, hospital, starving children, etc. – and explain the impact a few dollars every month could make.
Children often struggle to understand the difference between
needing food to survive and
wanting to dine out at their favourite restaurant. Or
needing clothing to stay warm and
wanting the hottest brand name.
Helping them grasp the difference between what is essential for their survival and what is simply ‘nice to have’ is a great starting point. But you can also extend this lesson by demonstrating the cost of necessities and offering practical examples of when they can afford to splurge on nonessentials.
You may even find it reduces the frequency of questions like, “My friend got a new bike, why can’t I have one?” Or, “my friend’s family went to Disneyland, why can’t we go?”
Once you start looking, you’ll likely encounter numerous opportunities to illustrate key financial concepts in real-world situations. The T. Rowe Price survey found parents used the following situations to teach their kids about money:
Calculating the value of a sale 60%
Calculating a reasonable tip at a restaurant 48%
Banking at a financial institution 47%
Calculating sales tax 43%
Discussing the cost of college 42%
Whenever a situation arises that allows you to teach your child about money, take advantage of it.
Both the Apple and Android app stores have several great apps to help you teach budgeting and money management skills to children.
PiggyBot (iOS) – This app helps children track their allowance income and budget their money into ‘spend-it’, ‘save-it’ and ‘share-it’ accounts. It also allows them to take pictures of items they want and are saving for.
Bankaroo (iOS, Android)– Amazingly created by an 11-year-old, this app is virtual bank for kids that helps them manage their cash.
FamZoo (iOS, Android) – Connecting the whole family, this app is a chore tracker and allowance manager that allows for IOU’s between family members. It also teaches children the power of compound interest, dangers of debt and importance of keeping on budget.
Savings Spree (iOS) – Harnessing the power of gamification, this app teaches children how to save for big purchases, make frugal purchases today and budget for donations or long term investments.
If you’re worried debt is getting in the way of effectively coaching your child to become an effective money manager, you don’t have to struggle alone. MNP offers a
Free Confidential Consultation and a range of opportunities to achieve the financial fresh start you need and deserve. A Licensed Insolvency Trustee will review your entire financial history while seeking to understand your challenges and goals – and identify which options may be most helpful for you.
You may qualify for a Life-Changing Debt Solution, such as
Bankruptcy or a
Consumer Proposal, which could help you become debt free within nine months to five years from your initial filing. Or you could benefit from budgeting assistance, referrals to credit counseling or numerous other services in your area. Whatever is right for your unique circumstance, your Licensed Insolvency Trustee will help you make the decision that’s best for you.
You can break the cycle of debt for good. Call us today to discover how.
Based out of Markham,
Joel Kideckel is a Licensed Insolvency Trustee and Vice-President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 416.515.3922 or toll-free at 310.DEBT (310.3328).
Our team of Licensed Insolvency Trustees will help you
explore the debt relief options available to you and
together we will find the solution that best fits your
situation. Set up your FREE, no obligation consultation
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*310-DEBT doesn’t operate in MB, NW ON and QC.
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