Every parent wants their children to grow into happy and healthy adults with rich and fulfilling lives. Financial independence is an important part of that equation—and it starts with financial literacy at an early age. “If children learn great habits when they’re young, saving and budgeting will come naturally when they’re older and earning more money,” explains Doretta Thompson, director, Corporate Citizenship at CPA Canada.
Even from an early age, everyday activities—such as withdrawing money from an ATM, paying a restaurant bill or buying groceries—present opportunities to educate your child. “Taking advantage of those ‘teachable moments’ is critical,” says Thompson.
What is money? Show your child various bills and coins, and explain what makes each one different.
Where does it come from? Draw a connection between your work and money, explaining that you go to work to earn money to buy things for the family.
What can money buy? Stick to tangible examples like food and toys—things that your child will value and understand.
Continue to teach throughout their teenager and pre-teenager years:
As children mature, their interests will change and parents can begin to introduce more sophisticated topics related to financial independence:
Earning money: Earned allowances—and later, part-time jobs—will solidify the connection between work and pay, and help children understand the effort behind every dollar.
Learning to budget: Involving your child in planning a party with a budget can help them understand wants and needs, and prioritize what’s important.
Learning to save: By suggesting your child “save up” to buy a specific game or toy or concert ticket, you can introduce the concepts of delayed gratification and finite resources (i.e., you can’t always get what you want, when you want it). Later, the discussion can expand to include saving for less tangible things, like post-secondary education and future goals.
Ultimately, says CPA and financial consultant Robin Taub in her 2011 book, A Parent’s Guide to Raising Money-Smart Kids, “you want your kids to understand that making a lot of money does not guarantee financial security; financial security comes from making sound decisions with the money you make.”
Lead by example:
You have a great deal of influence on your children, and they tend to mimic your actions. Instill good money habits by limiting the amount of shopping trips as leisure activities, using coupons at the grocery store and comparing similar products to demonstrate how cost factors into your decision process. Show your child that, because you saved, you can purchase something special that you would not have been able to purchase otherwise, or save it for an ever bigger purchase in the future.
Teach saving, giving and spending wisely:
Children should learn at an early age that all money should not go into one big spending pot. Use three labeled mason jars to separate money—one for saving, one for spending and one for donating. Any time your child earns money by doing chores or receives a cash gift, encourage him to divide the cash equally among the jars. He'll learn how to manage his money as well as the value of giving back.
Let them make mistakes:
Do you give your children an allowance or allow them to earn money for extra chores around the house? Giving them small amounts of money provides them with a great opportunity to manage it. If they make the wrong choice, they'll experience the negative consequences of their mistake and will learn to make smarter financial decisions in the future.
Talking with your kids now and implementing these techniques at a young age will set them up for a brighter financial future. At the same time, as you share these lessons, you might find yourself becoming better educated on these topics and then able to give yourself an A or B on your knowledge of personal finance.
CPA Canada’s financial literacy program helps Canadians of all ages get smart about their finances through surveys, publications, worksheets and CPA-led seminars in communities across the country.
If you have a child in Grades 4 through 11, CPA Canada’s free school workshop series introduces basic financial literacy concepts and skills using age-appropriate interactive activities and cases studies. Check out the online catalogue for a full listing.
The best way to raise financially literate kids, of course, is to be money-smart yourself—so make sure to check out CPA Canada’s book, A Parent’s Guide to Raising Money-Smart Kids. Another great resource for parents is “Are You a Good Financial Role Model?,” a 60-minute seminar on how to improve your financial management and set a good example for your kids.