How do you teach children about the value of money when they rarely see it being used? Debit and credit cards are often the payment method and many people don’t carry cash.
Just as children learn reading and math skills, there is also a need for them to develop financial literacy skills. They can begin with how to identify, count and use coins and bills.
Basic financial skills need to be taught early and then built upon as children grow. By the time they are leaving high school and often home, they understand how to develop a personal spending and savings plan, set goals, use credit, bank, comparison shop, track their spending, maintain financial records and prepare their own income tax return.
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Use teaching moments in everyday life. If you have a teen, start where their interest are and build in financial planning and banking information.
At an early age, a piggy bank is a good tool. Children have a natural interest in putting coins in the bank and then removing them. Sorting the coins by size and colour provides an opportunity for teaching the names of the coins and their values.
As children develop an understanding of math, coins are good tools for practising addition, subtraction and multiplication.
Everyday shopping trips can show how money is used to pay for purchases. It is important for children to recognize that debit cards aren’t “magic” cards with unlimited spending power.
These discussions lead to talking about earning money. As children get older, they can be given a share of the family’s money through an allowance. When older children get part-time or summer jobs, this presents opportunities to discuss plans for the money, savings and bank account use.
It is essential to discuss what the money will be used for. Short-term savings goals may be a special toy or game, while longer-term ones may be a new bike, car or college.
Introducing the concept of saving for post-secondary education tells the child that he will likely receive additional education and have some responsibility to help pay for it. The basic values of education, self-reliance and working for goals will help the child grow into a responsible teen and adult.
With a school age child, talk about financial goals. Some basic ones are spending, saving and giving. Help children realize that money is spent first on the basic needs and then decisions are made about the extras that are wanted.
For the family, basic needs are food, clothing, housing and transportation. The desire to have steaks, designer clothes, a large home or sports car are examples of wants. It is useful to share with your children your personal and family needs and wants to help them learn about how family financial decisions are made.
A clothing allowance for a child is a great way to help him learn about the value of money, the variation in clothing prices and quality and how to make realistic purchasing decisions. Clothing shopping with your child is a perfect opportunity to teach him shopping and budgeting skills.
Wise shopping is only part of financial management. Saving, giving and spending are the broad categories used in developing a spending plan or budget.
Many experts recommend 10 percent for long-term saving, and an additional percentage for short-term goals. It is also recommended that a percentage be identified to support church and charities.
A spending plan would include amounts that are to be saved or given, then financial commitments are listed such as a loan payment, membership, and monthly bills .
Finally, the flexible amounts are added such as meals, entertainment and clothes. The total should be less than the income available through allowance and part-time work. To make the budget balance or to meet some specific saving or “want” spending goals, the current amount being spent may need to be adjusted.
Introduce your child to the banking system by opening a saving account for him. Take preschoolers to the bank to deposit their money and explain they will earn interest that will give them more money.
Many financial institutions have no service charge on children’s accounts. As children earn their own money and a spending plan has been developed, discuss a chequing or debit account. The child needs to realize the responsibilities that come with this account. It is a good idea to have this account separate from their savings account so their savings are protected.
Use teens’ interest in computers and cellphones to introduce a money management program. Some personal accounting programs have an app that can be installed on a cellphone so purchases can be recorded at the time of purchase.
Most also have a budget capability so as money is spent it is easy to see how much is left to spend.
Learning how to track spending when their income and expenses are limited makes it easier for the practice to become a lifelong habit.
For more information, visit www.fcac-acfc.gc.ca/eng.
