Did your parents do a good job of teaching you about money? If so, then count yourself lucky. If not, it’s your responsibility as a parent to fill in the gaps where our education system often falls short.
Providing practical tips, advice, and engaging exercises throughout your child’s development can help them develop intelligent money habits early on, which can save them a lot of difficulty and hardship later on.
From simple activities for young children to more advanced lessons for teenagers, I’ll share some tips to help you give your kids the gift of financial literacy.
Why financial literacy is important
Financial literacy is a critical life skill, and I would argue that it’s more important than many of the other required subjects in school. Forgetting basic algebra equations won’t have nearly as dramatic of an effect on your ability to keep a roof over your head as making poor financial decisions will.
While advanced finance isn’t always necessary, I’m a firm believer that young adults should understand the basics of financial literacy, such as:
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How to create (and stick to) a budget -
How credit cards work -
How interest on loans and credit cards works -
How to avoid bad debt -
How to save money and utilize tax-advantaged accounts like the TFSA
All of this knowledge will encourage young adults to make smart financial decisions so that they can confidently navigate their 20s and 30s while avoiding pitfalls such as maxing out credit cards or turning to predatory loans to fix their mistakes.
Financial literacy in our schools
Financial literacy curriculum is included in most high school curriculum, according to the Financial Consumer Agency. However, the report goes on to say that “limited resources, lack of support, and competing priorities” mean that teachers often aren’t able to explore all of the topics.
The good news is that the tide is beginning to shift in favour of teaching more comprehensive financial literacy.
On May 30th, former Ontario Minister of Education, Stephen Lecce, announced that home economics and financial literacy would be prioritized. To ensure this, Ontario high school students will now be required to pass a financial literacy test.
Financial lessons to teach your kids
Even in the best public high school curriculum, kids still aren’t learning financial literacy until high school. Here are some lessons and exercises you can begin implementing with your kids at a young age to help them become more financially literate.
Young kids (ages 3 to 7)
For young children, focus on basic money concepts through playful activities. Use games that involve counting coins or playing “store” to introduce the idea of money. When I was a child, my parents gave me a toy cash register with paper money and coins, so I could begin adding and subtracting money.
Teach the importance of saving by giving them a piggy bank and encouraging them to save coins regularly. Encourage them to delay gratification by setting savings goals as well. This will create a rewarding experience when they get to see the value of patience, goal setting, and consistent saving.
School-age kids (ages 8 to 12)
As children grow, start linking money to work. Introduce allowances tied to chores to teach the connection between effort and earnings. Once they have a little bit of spending money, they’ll likely be eager to spend it.
This makes it the perfect time to teach budgeting and spending, further building on the piggy bank lessons from their younger years. Help them set savings goals for desired items, track their weekly spending, and understand the importance of making choices with their money.
Teenagers (ages 12 to 18)
Teenagers are ready for more advanced financial concepts. Discuss the basics of banking, including how to open and manage a bank account, and explain the principles of interest and investments.
As they grow older, encourage them to take on part-time summer jobs to gain practical experience in earning and managing their money. Teaching them about credit, loans, and how compounding interest works is important too.
The Bank of Canada has a compounding interest calculator that can be a helpful tool when showing your teens just how far small, compounding investments can go.
Lead by example
At the end of the day, you need to be able to walk the talk yourself, as children are more apt to follow their parents’ actions over their words. It’s also a good idea to regularly talk about money and finances with your kids.
Bring them with you into the bank or when making big purchases, like a home or car. Encourage them to ask questions and explain financial terms to them to the best of your ability.
Financial literacy is one of the best gifts that you can give your children.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.
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