There are book smarts and street smarts and wise parents make sure their children benefit from equal measures of both. Then there are money smarts – an often overlooked, but equally important, area of education that will pay off for your children as they grow. It’s essential to build ‘money maturity’ in children because money management skills are vital to achieving their life goals.
“The important thing to remember when it comes to teaching your children dollars and sense is that money is actually a good thing when it is used responsibly to help lead a better life and to help others”, says Debbie Ammeter, Vice President with Investors Group. “That’s why your toonie tutorials should include hard money skills – such as managing money, understanding debt and credit, and managing income and investments – and soft money skills that illustrate how money can help achieve their dreams.” Here are some other age-appropriate lessons you can use to give your children the money smarts they’ll need to achieve their life goals, to support worthwhile causes, or just to have fun.
6 – 12 years: Start your children off with a ‘fun’ bank they can fill with coins from you and others. Later, let them graduate to a ‘real’ bank account and give them an allowance clearly tied to the completion of certain tasks. An allowance for a fixed amount is best because it teaches your children there are serious choices to be made about when to spend and when to save. Open a second account for them where at least ten percent of their allowance must be deposited. Explain how interest works to make their money grow. Other good money education tools include board games like Monopoly or websites such as the Bank of Canada that have interactive sections about banking and money for kids.
12 – 16 years: Help your children develop a simple budget plan that includes keeping their tax receipts and statements to evaluate where their money went, and a regular charitable giving component so they’ll understand how their money can be a positive force in the community. Give your children an allowance ‘bonus’ for special work with the stipulation that this extra money must be invested. Introduce them to the concepts of ‘compounding’ and tax-saving through investment vehicles such as a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA).
Use shopping trips to discuss debit and credit, why and how interest is charged and the fact that credit cards (especially retail cards) carry much higher interest rates than other forms of borrowing, such as personal loan.
16 – 18 years: Have your children file their own tax returns as soon as they have a job that results in a T4. This will give them a more ‘personal’ view of income taxes and build up room for future contributions to an RRSP and/or a TFSA. Further their credit education by co-signing for a credit card in their name with a low limit. Carefully monitor its use and instill in your children the importance of paying credit card payments monthly to maintain their good credit rating and avoid high interest rates or late fees. Use monthly credit card statements to discuss their spending patterns and best uses of their purchasing power.
Involve your children in your family finances. Show them how the family budget balances expenses and income. Introduce them to savings and investment products such as stocks, bonds, Guaranteed Investment Certificates, registered and non-registered savings plans, and the role of insurance, as well as investment concepts like portfolio diversification and risk/reward decisions.
It’s smart to talk money with your children and if you need help with your toonie tutorials, give the folks at Investors Group a call. (902) 423-8294. www.investorsgrouphalifax.com