Money Management and Your Kids

If you think back to being a kid, there are probably a ton of things you miss: having summers off, eating tons of junk food, playing with your neighbourhood friends in the street all day and more. However, there’s arguably nothing you could miss more than the days before bills, taxes and financial management became a central component of your life. Things were so much simpler back then!

Though young children shouldn’t have to be concerned with financial issues, every child will eventually grow up and be put in charge of their personal finances at some point down the line. The manner in which they handle their finances once they take control is almost entirely based on the way they perceived, used and interacted with money throughout their childhood. A widely-cited study by researchers from the University of Cambridge from 2013 shows that children develop most of their life-long financial habits by the time they’re seven years old; after that point, it becomes extremely difficult to change any perceptions about money they’ve already developed. Research also shows that children often mimic their parents’ behaviour when it comes to financial management. In a study by the National Bureau of Economic Research from 2019, it was found that children with parents who show little concern about borrowing money will also be less concerned about regular borrowing when they reach adulthood, even if it puts them in a difficult financial position in the long run.

It’s not nice to think about, but when the children of today grow up, they’ll likely have the deck stacked against them more so than any generation before them in terms of their ability to find financial security in adulthood. Think the housing market is rough for Millenials now, and will be for Gen Z in a few years? Just wait until today’s children reach home-owning age. The cost of living and inflation will inevitably continue to rise, while it’s unclear if wages will increase in a proportional amount. Moreover, the onset of the global COVID-19 pandemic has reinforced that sweeping economic changes can happen in the blink of an eye, and can push those who were already somewhat financially vulnerable into desperate situations. Ultimately, your kids will probably have way less room for error than you do in the way they manage their money, meaning they need to be ready for when they finally take control of their personal finances.

Unfortunately, there’s a major gap in regards to financial education in Canadian schools today. Though they should be, Canadian kids aren’t generally learning how to perform basic financial responsibilities like filing taxes, managing their daily expenses or meeting long-term financial goals as part of their grade school curriculums. That means the responsibility to teach children strong financial habits lies squarely with their immediate family members and caregivers, and doesn’t end until they’re late into their teenage years. So, if you’re a parent of young children today, teaching your kids to manage their money mindfully is one of the greatest favours you can do for them. By providing them with financial guidance starting from when they’re young, you’re taking concrete steps to help set them set them up for success and financial independence in adulthood. Here is some of our best advice for parents who want to get started on teaching their kids the importance of financial literacy.

Pay them an Hourly Wage
One of the best, tried-and-true ways to get kids used to managing their money responsibly is to pay them an allowance for doing chores around the house; it teaches kids the value of a dollar to contribute to managing the household and to earn a proportional amount of money in return. However, you can enhance this concept so that your kids learn some valuable, realistic lessons about money management from the time they’re young. Instead of paying your kids for each task that they complete, pay them by the hour or half-hour for their allowance and track the amount of time they’re working. If setting the table, feeding the dog and cleaning up their toys takes them one hour, they’ll earn the pre-determined amount of money for one hour of work (not a different amount for each job). This will help give them a realistic idea of the manner in which most adults are compensated in the workforce.

It’ll also be important to pay them once a week on “pay day” (or bi-weekly if desired) instead of paying them whenever they ask for their money. This will teach your kids what it’s like to be an adult with a set pay schedule; unless you’re an entrepreneur, you don’t get to pick when you get paid as an adult. If you’re in the habit of spending all your money in the first three days after receiving your paycheck, you probably have to take on debt to cover your basic expenses until next payday, which is a widely recognized cause of financial insecurity. Do your best to help your kids avoid developing this habit!

Once you’ve got your allowance system set up, you’ll need a place where you kids can put their money. A piggy bank, of course, or a glass jar are both great options (or, you can start a virtual Saving Jar for your kids through QUBER by clicking here). Encourage your kids to start saving a set amount of each payment they receive from you in their piggy bank. Even if they can’t access it on their own all the time, it’s important that your kids can see their money growing as they start to earn it. Furthermore, if you can tie the concept of financial goals into this process as well, that’s even better. For example, if your son wants a new Lego set, tell him he can have it soon if he puts $5 of his allowance away each week. You can even offer your kids incentives for reaching pre-determined saving goals (similar to the way QUBER offers cash incentives for completing any Saving Challenge). To continue the same example, if your son saves up $25, you could offer to cover the rest of the cost of the Lego set as a reward for saving diligently towards a goal. Ultimately, if you can reinforce in your kids from a young age that saving money is a slow process, but that it allows you a ton of freedom to make choices later down the line, you’re on the right track!

Watch their Shopping Habits
Once your kids reach the age where they start accumulating a bit of spending money, they’ll be eager to get into the world of shopping and start buying things for themselves. If you think back, you may even remember your first experience visiting a mall with some money to spend; it was probably super fun! However, the seeds of impulsive spending habits in adulthood are planted right around this time. Your kids are being exposed to commercials and ads for countless products on TV and on the Internet, and without the other kinds of expenses adults have to manage, they can focus all their spending money on non-essential items without consequence. It’s extremely easy for kids to focus entirely on “wants” and not at all on “needs”.

As such, it’s really important to monitor your kids shopping habits as they begin to develop. This is particularly true for parents of young girls; not to say there aren’t plenty of products marketed specifically at boys too, but your girls will be exposed to a large number of stores and goods aimed specifically at them (think Claire’s, Justice, etc.). If you notice your kids are regularly going to the mall with money and coming home with none, you should see this as a red flag. These kinds of indulgent habits are going to be likely to follow them into adulthood, but it’s not likely they’ll be able to manage them well once adult financial responsibilities come into play.

A great strategy to enact is to have your kids start a list of items they want and encourage them to save towards only the items on the list. The list should have a maximum number of items that can be added to it (ex. 5-10). With your kids, research the cost of each item and include it on the list so they can see how much they need to save for each item they want. If your kids want something, like a new video game console, they can add it to the list, but will be expected to bump other items off to make room for new ones if the maximum number of items has been hit. This will help work against the short attention span that many children have when it comes to products that catch their eye, and can help dissuade them from developing impulsive habits. If they still want that new toy a few weeks later, they’ll already be on their way to saving for it. If they decide they don’t want it anymore and it can be kicked off the list, you’re helping to show them that many material wants are fleeting, and not always worth their cost. This will help your kids learn to prioritize long-term goals and think more critically about the things they buy.

Get Them Involved
Depending on how old your kids are, many of the higher-level concepts involved in personal finance are probably going to go over their heads. However, once you feel they’re ready, it’s a great idea to involve your children in the process of opening a bank account, visiting the bank and eventually, using online banking to manage their expenses. These are all practical skills that your children will eventually need to perform on their own, so the earlier you can expose them to the practice of banking, the better. Though they’ll likely need a fair amount of supervision and guidance as they first navigate having their own bank account, you can help instil best practices (ex. keeping PIN’s confidential) from the start. By eventually working in supervised online banking sessions, you can also get your kids into the habit of staying up to date with their bank transaction history. This will be a major element of their adult life, so ensuring they start checking their bank balance on a regular basis from childhood gives them a great advantage. This will help build up a sense of confidence with banking and money management.

If your kids are too young to be having discussions about money management just yet, you can still work financial concepts into their lives in ways that will get the ball rolling later in life. For example, the Government of Canada recommends introducing basic concepts into the way you play with your kids; you could have them pretend to run their own business, to go shopping for groceries or that they’re going to the bank. These kinds of activities will help familiarize your children with the ever-present concept of money and the numerous different ways it impacts the average person’s life.

Finally, it’s a good idea to talk with your kids about the practice of money management. You can keep it simple and tailor it to their developmental stage, but it’s important to check in with your kids and see how they perceive money and personal finance. Admittedly, that leaves a ton of ground of cover! You could, for example, talk to them a bit about marketing and try to get them to think critically about the colourful commercials for toys and games they see on TV. You could use that to launch a discussion about the difference between a want and a genuine need. You can use toys to educate your kids on the finite nature of money, and how for most people, spending money means making choices (as the average person can’t afford to simply buy everything they want and need). You could also talk about how to achieve financial goals, and try to ensure that your kids understand the importance of taking a long-term vision when it comes to financial management. With kids, it’ll be next to impossible to get them to focus on major financial goals like retirement, but if you can get them to grasp the concept of delayed gratification, they’ll have a much easier time reaching long-term goals when they get older. These certainly are larger concepts that can be tough for a younger kid to grasp, but you’ll know when they’re ready.

Reflecting on your own experiences with learning to manage money, we bet you‘ve thought at least once, “man, I wish someone would have guided me a little bit better.” Today, you have the opportunity to do that favour for your kids and start them from the most advantageous position they can be in. Your kids are listening to you; teach them strong financial habits from the start and help set them up for a successful life!

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