There’s no argument that kids who learn healthy money habits will be able to better handle personal finances as adults. But did you know that, according to PBS, by age three, kids can grasp basic money management concepts? And by age seven, many money habits are already set.
Spending and saving habits are the most age-appropriate concepts to help kids learn about money early on. And while many schools across North America are providing some form of financial education for kids in kindergarten through grade 12, the most important lessons in money management actually start at home.
Here are some ways parents can get their kids excited to learn about finances.
1. Include kids in conversations about finances.
One of the best ways to get kids versed in money management is to lead by example. So when discussing personal finances with your partner or adult family member, be sure to include your kids. Use simple terms when explaining concepts like debt management (money that we owe), and savings (money that we are putting into an account to save for our goals or emergencies). Have them participate when you're shopping for things like groceries, so they learn healthy spending habits. Try setting a family financial goal that you can all track and work towards together.
2. Provide an allowance.
This doesn't have to be a large sum, and can be weekly or monthly. For younger kids, have them save this money in a piggy bank so they can actually see how it accumulates. For older kids, you can open a bank account, or even a prepaid credit card in their name and have them manage it. When they want to buy something, have them spend their own money. This is a great way to establish saving and spending habits from a young age. Want to take it a step further? Have your kids earn their allowance by completing chores around the house. This teaches them how to work hard for their money at a young age.
3. Set up healthy habits towards credit.
It’s safe to say that at some point in your kids' lives, they’ll be in debt. In the U.S., the average post-secondary student owes $32,731, according to the Federal Reserve. In Canada, the number is comparable at $26,075, according to Statistics Canada. So when they’re in the later years of high school, discuss concepts like credit and interest more frequently, especially since they’ll be closer to the age that they’ll use tools like credit cards and lines of credit. Have them “borrow” some extra money from you to buy something they want. Negotiate an interest rate and payment plan. Then ensure they pay that borrowed money back on time, and in full.
4. Show them how money can grow.
While saving and spending are important basic concepts, investing is a way to teach kids about building wealth. For young kids, ask them about some of their favourite companies, like Disney or McDonald’s. Explain how they can invest their money into that company and own a piece (or share) of it. Then, follow these stocks online with them daily or weekly. Explain what it means when the stock price rises and falls — if the company’s stock price goes up, their share value increases; if it goes down, their share value is reduced. Help them understand that they don’t make, or lose money until they sell their stock. Take it a step further for older kids and have them actually invest a small portion of their money in a couple companies they like (note: kids under 18 aren’t allowed to buy stocks, so you’ll have to purchase on their behalf). Be sure to discuss the risks and rewards of investing in the stock market. And remember that the stock market isn't the only way to invest. They could also try out mutual funds, or ETFs for example. Show your kids how to find out the fees and minimums as they make their selection. You can also have your child put a portion of their money into an RESP or TFSA. Explain how that money grows based on the value of the investments held in those accounts. And, as a bonus, when you’re teaching investing concepts to your kids, you’ll also learn.
5. Discuss charitable giving.
If giving is an important value to you, you can instill that value in your children early on. Have them think about a cause that’s important to them. Then help them research charitable organizations that support that cause, and decide how much of their money they would like to give and how often. Ensure you’re teaching your child something that is reasonable to continue into adulthood. Some popular early financial education concepts for kids include the idea of giving away one-third of a child's funds. In real life, most of our children will not be able to give away that much of their incomes as adults. So help your child come up with charitable habits that are also sustainable.
Research points to the fact that financial education decays quickly, so it’s important to keep discussing these concepts with your kids. And remember that while financial habits aren’t inherited, kids often learn by watching their parents. So demonstrate your own financial capability and help your kids develop healthy money management habits early on.
Are there areas of your own financial capability you’d like to improve? Check out our free education program, The Financial Capability Series. You can register for some, or all of the upcoming topics, and watch replays of past topics from the registration page.
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allows them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
PBS (2018). Money habits are set by age 7. Teach your kids the value of a dollar now. PBS NewsHour. URL.
ValuePenguin (2019). Average student loan debt in America: 2019 facts & figures. lendingtree. URL.
Reviewlution (2021).13 worrying student debt in Canada statistics in 2021. Reviewlution. URL.