Dealing with finances is a daily part of adult life, yet it’s not something most of us were taught in school. Talking to your kids about money at an early age can help them understand the value of the dollar, how to save for long-term goals and how to spend responsibly. Teaching children about finances can build financial literacy and give them a stronger ability to manage their finances later in life.
“We find in the banking industry that a lot of people had to learn about everyday finances as an adult, and that they struggled and made some costly mistakes before understanding it,” said Mary Kondro, ATB Branch Manager, Fort Saskatchewan and mother of two. “Long term saving, budgeting and credit is not something taught much in school, and because of that it’s up to us as parents to teach our children about money.”
How to teach kids about smart financing.
One of the most important things kids can learn at an early age is differentiating between things they need and things they want. Then learning how to save for those things. Preschoolers don’t understand that money doesn’t grow on trees, so to speak, and they also don’t understand the value of a dollar when it comes to buying things at the store. Here are some things you can try to help them learn:
Split their earnings into categories.
“I suggest getting your child a bank account. Then when they receive any money, as a birthday gift from grandparents for example, you can teach them how to split the money into three categories.” Kondro continued, “a portion goes into a piggy bank for fun stuff they might want. Another portion goes into a tin can for things they might need. The rest goes into the bank account as part of a long-term savings plan. I like the 50/25/25 ratio. It allows them to still have money for the fun things right now but also put money aside for needs and savings”
The money that is saved in the piggy bank can be used to save up for a toy, or to take to the corner store for candy. Having their own money to spend will teach them quickly how much things cost, how to be more selective with their purchases and how to save for the larger items.
The money saved for things they need can teach children that money is essential for living life, and not just for buying fun stuff. An option here is to sit down with kids and start to identify needs versus wants. This will help them understand what needs they may have to spend their money on and why they are putting this money aside.
The money in the bank account is for long-term savings. A kid isn’t saving for retirement, obviously, but they can be taught about identifying a long-term savings goal and figuring out how much they need to save to reach that goal in the future. Examples could be a new bike, family pet, a car when they’re a teenager or even post secondary education. A picture of the item could also be placed on a bulletin board at home, helping to remind kids why they are saving this money.
“In their mind, kids will know that saving for these things will take time and that they’re in the far future. Teaching them to get into that mindset and making long-term savings a natural part of handling money, will give them a better understanding and ability to save for retirement when they get older,” said Kondro.
Understanding your own financial goals and how to reach them is important when teaching children how to save.
Let them handle money.
Kids will have a hard time learning about the value of a dollar if they never handle money or have a chance to spend it themselves. Giving them a small amount of cash to spend, or even a gift card, can help them learn how to do some math in the store to see how much they can or should spend on something. The act of paying for something at the cash register and receiving change can also be a learning experience for kids.
“I noticed with my own kids that if they are in a store using their own money, they don’t just throw everything they want in the basket. They pick and choose, start to put items back and learn very quickly that when the money's gone, it’s gone,” said Kondro.
This helps children learn how to keep track of what they are spending, a skill that many adults struggle with in an era of tapping debit and credit cards. Even small transactions can show kids how to create a plan for their money, and they’ll learn a skill that will benefit them greatly in adulthood.
Be a financial example for your kids.
Just like most things, your children will learn from your example. It’s important to understand your own finances, set financial goals and plan for the future. However, it can be challenging to talk to your kids about finances if you feel you can use some help with that topic yourself. ATB Wealth offers resources to help you reach your financial goals, check out our Wealth Good Advice page here.
The more you educate yourself, the better you can teach your kids. Not only will it give you peace of mind knowing your children are capable of making smart financial choices, it also helps promote and build financial literacy for the next generation.