How to effectively introduce the concept of money to your children

Children start to form a very basic understanding of the value of a dollar as early as three years old, and that’s why it’s key for parents to introduce healthy financial concepts to their little ones early.

Talk about money, but keep the conversation positive: It’s common for parents to associate negativity with finances; in fact, that’s how I grew up, and it took me many years to break this thinking. For many, they’ve learned the hard lessons through first-hand experiences with credit card balances, lingering student loans, an unsteady job market, and unaffordable real estate prices. So, it’s no wonder that fear and anger is the baseline emotion associated with money.

But negativity is not a healthy approach when children are learning important financial life lessons.

Talk openly and positively about money; how it helps the family buy groceries and toys, why it’s important to save it, how to make it last longer through discounts, and try to explain that each family has a certain amount of it, and that the adults decide on behalf of the family the best ways to use the money. Avoid negative blanket statements such as “there’s never enough,” “we’re poor,” “I’m not an ATM,” or “if only my boss would pay me more,” because young children won’t understand this negative association with money.

A great place to start a positive conversation about money is at the grocery store. Take your children with you. Explain your choices such as why you paid a little more for healthy granola versus Froot Loops.

Introduce an allowance structure that isn’t tied to chores: When I was little, my brother, sister, and I were paid allowance only if we completed chores such as making our beds, putting our toys away, loading the dishwasher, and so on. But more recent parenting studies show that linking an allowance system to chores has no bearing on how the children will value money. Children should want to contribute because they’re part of the family, not because they’re being paid to do it.

Thus, allowances would be issued in regular intervals, just like a paycheque, starting between the ages of three and five, and the allowance wouldn’t be dependent on chores.

Help your child manage their allowance by giving them a framework: Step one is to explain that each allowance needs to be split three ways — saving (20 per cent) and eventually half of this becomes investing, giving (10 per cent) and spending (70 per cent). For very young children, give them $10 in loonies that can easily, and quite literally, be divided up into these categories.

Step two is to take them to open up a savings account, and make it a regular habit that on allowance day, they go and make a deposit of 20 per cent of their allowance into their savings account. Most financial institutions have a no-fee account for kids.

Step three is to give them a wide berth to decide who to give away their 10 per cent giving portion to; a nearby vet clinic, a lunch box program, and so on.

Step four is to allow them discretion around the spending portion. Though you might not like how they spend the remaining 70 per cent, it’s key to let them try spending on various things; school supplies, toys, ice cream, and more. They will learn important lessons about how to stretch their money, to count change, and what to do if they don’t have enough (HINT — this is not your cue to give them more... they need to save up). Along the way, you can give them helpful coaching.

As I become a parent again this summer, it’s my goal to raise financially strong children who understands that they can make good choices with their money today, and that in turn will help support an awesome future.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.