People find themselves in financial difficulty for many reasons. Among the many individuals and families who reach out to me for debt help options, I have noticed one reason that continually pops up: parents are helping grown children that have not made their way financially. Adult children are returning home to live with their parents, relying on parents for loans, or asking for money for everyday expenses, and it is causing a real burden for the parents. Parents are helping their children when they should be saving for and attending to their own debt repayments and retirement.
So, how can you raise financially literate children who grow up to be financially independent adults?
Financial literacy and lessons about money should start when your children are old enough to start asking for things for themselves. Think about what parents say when their small child asks for another cookie or popsicle — the child is cautioned about tummy troubles or tooth decay. When your child asks for another toy, video game or Lego set, it’s a good opportunity to sneak in a money lesson. Talk to them about simple savings goals, or show them how you save up for something that they may be able to relate to, like a family vacation or a new car.
When children start school they will learn about currency denominations and basic math skills, like how to add and subtract. This is a good time to talk to your children about the cost of familiar items. Relating the cost of a toy or video game to the number of weeks of allowance it would take to save up for that item brings a time value of money perspective to the situation. In addition, when shopping with your children try using cash whenever possible to reinforce an understanding of the value of money. Using a credit card for purchases can make it seem like you have an endless supply of purchasing power.
High school-aged children should understand the value of money relative to day-to-day purchases such as a bicycle, a movie, a vacation, a computer. They should also be made aware of what an average salary amounts to on an hourly basis so they can develop an understanding of just how much effort is required to save for and purchase the necessities of life. When your children reach their early teens, begin to include them in family meetings or discussions on budget items such as the costs of travel or groceries for a month.
Prior to leaving high school — and certainly before the age of 18 — talk to your children about credit cards and the costs of using credit. The biggest trap young adults fall into is believing that a credit card somehow extends their ability to consume. This is quickly proven false when they learn that due to the costs of using credit their purchasing power is actually reduced. In addition, before children graduate from high school they should understand how to create a budget plan for college, and they certainly shouldn’t head off to university without a solid understanding of living within a set weekly cash amount.
So how should you go about having these conversations with your children? Here are a few tips:
- Become financially literate yourself. Educate yourself on credit card usage, pitfalls and terminology. Create a working budget for the household and stick to it. Your child will notice your spending and saving habits, so try to be the best financial role model you can be.
- Keep it fun. Everyone (well, almost everyone) from my generation who ever spent a sick day home from school sitting in front of the TV, knows that the price of a package of Rice-A-Roni is less than the cost of can of Lemon Pledge. Why? Because “The Price is Right” showed the cliff hanger episode with the little backpacker falling to his doom. Simply put, make learning about money fun and interesting and you will get buy-in from your children. Games, graphs, savings goals and piggy banks to fill are easy ways of making it fun.
- Make it relatable. Help your children create a budget and save towards a bike or a baseball mitt. Help your teenagers cope with the pending independence that comes with a driver’s license by showing them how much it costs to gas up the car. Incidentally, taking your teenager to the gas station regularly so they can see for themselves how long 80 dollars of gas really lasts is a valuable money lesson!
This list and topic is a substantial one. While this blog provides you with a good start towards raising financially literate children, you can take this knowledge and build on it. You will find all kinds of financial literacy resources online. A good place to start is the “Money and Finances” page on the Financial Consumer Agency of Canada website. Your retirement you and your children will thank you.
Jayson Stoppel is a Licensed Insolvency Trustee and Chartered Accountant with BDO First Call Debt Solutions. With over 15 years in practice, Jayson assists individuals, families and companies with financial difficulties in Thunder Bay and throughout Northwest Ontario. To reach Jayson by email: JStoppel@BDO.ca