The benefits of early financial education
For many of us, learning about money when we were young involved piggy banks and perhaps an allowance – but studies have shown that children can understand much more than that about money.
A study from the University of Cambridge | PDF 1.5MBOpens a new website in a new window shows that by the age of 7, several basic concepts of finance are already developed. By this age, most children can grasp the value of money, the concept of delayed gratification and how spending and saving decisions can impact their future.
Research from Canada Life has shown that in the past year, 9 in 10 parents talked to their child about responsible spending, importance of saving, student loans, mortgages and household budgeting. Introducing these and other important financial concepts earlier than later will help your children develop positive habits that could translate into adulthood.
Ways to talk to your kids about money
In our Canada Life research, 78% of respondents said they hadn’t started conversations about money with children aged between 5 and 9 as they felt they were too young to understand the concepts. However, we know that children can grasp financial basics by the time they reach Grade 2, so it’s beneficial to start conversations about money sooner than later.
From as early as toddler years, you can introduce them to different kinds of coins and bills, and play make-believe games that involve paying for goods or going out to eat. As they progress through grade school, you can start to introduce concepts such as the difference between saving, spending and borrowing.
Making money part of everyday life will help kids become more familiar with financial terms and actions. For example, you can involve children when you’re out shopping or running errands, discussing things like what you’re buying and why, the prices of goods and how you decided to pay for certain items and why. You can involve them by helping them pay at the counter or asking them to look for sales and coupons that can help them understand pricing as well as the value of items.
Teach them where money comes from
Growing up, many of us heard the expression that “money doesn’t grow on trees”, but the second part of this lesson should involve telling them where it does come from. You can start by teaching children the connection between jobs and money, and introduce other ways people receive money through things like gifts, or savings and investments.
Teach them how things are paid for
With so many methods of payment available today, it can be easy for kids to become confused about how to buy things. You can show them the difference between cash and cards, and the difference between cards such as debit, credit and prepaid cards. It can be especially helpful to explain that a debit card is linked to your bank account and explain how it’s different from a credit card.
When discussing credit cards, you can talk about how they work along with things like different types, when and when not to use a credit card, interest rates, how to repay your balance and credit scores.
You may also want to have discussions about shopping online. It’s important to teach kids that it still costs money to buy things online, especially if they have access to apps or games that might give them the option to make purchases.
Discuss everyday spending
Showing children how much things cost can help them figure out what they can buy with any money from an allowance or a gift, and show them the value of different goods. You can show them how you budget to cover things like internet, groceries and other household items, which can help to reinforce the value of a dollar and how to live within your means.
Discuss investing and saving
Along with showing kids how to handle money on a day-to-day basis, it’s also important to teach them how to invest and save for the future. For example, you can clarify that although some accounts like a Tax-free savings account (TFSA) have “saving” in the name, it’s actually a way to invest money. You can explain the basics of how investing works and how it can help savings grow over time.
Our research found that 7 in 10 parents give their children an allowance of $37 a month. If your children earn money through chores or receive an allowance, you can help them understand the concept of saving by setting small goals. When they’re younger, this could be saving for a toy, a piece of clothing or an activity. As they get older, they can apply these same principles to bigger goals like saving for college or university.
Be a good role model
Lastly, make sure to set an example by practicing good financial habits and sharing these with your children. Make a budget and stay on top of spending and borrowing by checking your monthly accounts or financial apps often. Other good financial habits to practice and share include making payments in full and on time (or at least the minimum payment), making lists when shopping, buying what you can afford and making regular deposits into saving and investing accounts.