How to become a financial “tiger” parent

新年快樂! 虎虎生威! 心想事成! 幸福安康! 

Happy New Year and we hope you are having a healthy and prosperous start to the Year of the Tiger!

In the book Battle Hymn of the Tiger Mother, author and law professor Amy Chua gives the reader a memoir about her parenting journey using strict Confucius child rearing techniques, which involved pushing her daughters for “As” in school, banning TV and video games, and making sure they were practicing the piano and violin for hours every day (oddly this sounds a lot like how my parents treated me through my childhood!). Why take this approach? Chua’s reasoning is that nothing in life is fun until you are good at it and getting good at it means hard work and discipline.

Chua’s philosophy can be applied to teaching our children about money. In a society where many kids now want (and expect) to have everything adults have, including tablets, gaming consoles, cell phones, cars and even houses (for adult children), it’s up to the parents to teach them that nothing in life is free and that, with discipline, they can be capable of making good financial decisions.

The Financial Consumer Agency of Canada has a lot of resources about how you can teach your children about money, and when you can teach them the various concepts, including: practising good financial habits, making good decisions about spending, understanding the difference between needs and wants, saving for the future, and using credit responsibly.

Practising good financial habits

An important habit to develop is to know where the money is going. Have children record their spending; this will help them build their budgeting skills. To track the expenses, the children can: add each amount of what they save or spend on a colourful chart, write it down in a notebook, enter the information into a computer spreadsheet program, or use apps that track saving and spending, such as Mint or Money Manager.

Tracking expenses is an essential aspect of good budgeting. As a Licensed Insolvency Trustee (LIT), I’ve met countless adults who don’t track their expenses, while they claim that they live by a budget. However, they often find themselves not meeting their budgeting goals, and short on cash before the end of the month. If you’re budgeting without actually tracking the expenses, unfortunately the budget is just good intentions. Actually, even before creating a budget, you should track expenses for a few months so that you can establish a baseline of what your expenses are. Then you can come up with realistic budgets which reflect those actual expenses.

Making good decisions about spending

Help your children make good decisions about spending by saying “no” to impulse buying and encouraging them to avoid impulse shopping by: making a list in advance, not buying an item just because it’s on sale (and trying to wait a day before buying the item), and shopping around for the best deal by encouraging your children to compare prices between products and stores. Take them to several stores to comparison shop for the item they want and look at similar items; this will help them get the best value for their money. And finally, talk with your children about advertising; help them deal with pressure to buy certain goods or services. This pressure may come from advertising or from peers. Talk about how advertisements and marketing campaigns can influence their spending decisions. Help them make informed decisions so that they do not buy something they do not need just because of an advertisement.

Understand the difference between needs and wants

Help children understand the difference between needs and wants. They should spend money on the things they need before the things they want. This will help them make good spending choices.

Explain that needs include housing, food, and clothing for the entire family. Money must be first used to pay for basic needs. Wants are expenses you can afford if there is money left over after paying for your needs, which may include restaurant meals and family vacations.

Knowing the difference between needs and wants will help children understand how to live within their means. They can’t spend all their money only on the things they want; it’s important to save for things they want.

Saving for the future

Teaching children how to save can help them learn how to be financially independent, and also how to avoid overusing credit and loans in the future. When talking about saving money with children, discuss goals that appeal to them; for example, they can save for a goal such as a video game or a special activity. As children get older, talk about saving for longer-term goals such as post-secondary education.

Help children calculate how much they need to save to reach their goals. Have them figure out how much they need to save each week or month, and for how long, to reach their goal. Then help them create a budget which will allow them to reach their goal and track their expenses to ensure that they are spending within their budget.

Use credit responsibly

When your children grow older, you will also need to teach them to use credit responsibly. This may help them avoid future problems with credit cards. It’s important for them to know that credit doesn’t mean extra income, that the entire balance on their credit card should be paid each month, and paying just the minimum payment will cost more over time due to interest.

Also, talk to your children about the importance of their credit history, and how their credit score could affect their financial future. Lenders, employers, and landlords may look at your teen’s credit history before deciding to lend, hire, or rent to them. Explain to them that their credit history is used to calculate a credit score.

Secured credit cards can help your teens build a credit history. These cards work much like traditional credit cards, but the credit limit is based on the amount of the security deposit.

Ultimately, the best way to teach your children financial discipline is to lead by example. If you eat out regularly or spend your weekends shopping online, your children will likely do the same. For example, teach them how to cook and bake, and make meal preparation a family activity. Children who love to cook are less likely to spend all their money on takeout or UberEats when they grow up.

A thoughtful and deliberate approach to teaching children sound financial principles is not always easy in the moment. But just as with other things like piano and violin, finances become more enjoyable when we diligently master the fundamentals.