The importance of teaching your kids how money can make money

Maybe you’re not where you wanted to be financially. That’s OK. You can still give your kids incredible money skills that they’ll have for a lifetime. Here’s how to get started.

Talk about the value of money starting from an early age

Kids begin developing a sense of value as early as three years old. It often happens, as an example, at the grocery store while you’re comparing prices and chatting with them about why you’re choosing this type of apple variety over another, and you mention something about the price being better. When you pay, they see you make an exchange — card, tap or cash for whatever was in the cart. If you take a list with you, which I recommend you do in an effort to save money, they’re picking up the early concept of planning ahead. 

I know it’s tempting to complain really loudly about the cost of living, but do what you can to insert healthy, upbeat and positive conversation about basic money matters — shopping, saving, giving — every day as you go about your regular life. This will help form a positive association with money versus fear, sadness, comparisons or anger about not having enough of it. 

As they get a bit older, have them assist you with smart shopping, making lists, circling good deals in the flyers and recognizing if something is/isn’t on sale. This step is so important because kids need to see how they have a hand in controlling what happens with money; financial empowerment.

Teach them how to budget

Yes, giving your child a small allowance you can afford is a good idea. Start around age five when they have a decent track record of remembering where their toys are. I often suggest something like $1 for every year of their age. So a five-year-old would get $5; a 15-year-old would get $15. You decide on the frequency based on your cash flow. You decide if it makes sense to link this allowance to chores — just be consistent.

With this money, teach them three simple budget lessons they’ll have for life:

• Before you spend any of it, put some in a savings account. I recommend at least 20 per cent — it’s not like they have any expenses!

• Spend only what you have left (this is the concept of spending within your means).

• When you spend, get a deal (stretching your hard-earned money to achieve the greatest value is one of the most important personal finance principles).

Teens should take this one step further and make a budget using a template. Google search to find a free teen budget template. One of my favourites is from Junior Achievement, a program I used to volunteer with ages ago that helps teens learn basic money skills.

Get them a bank account

If your child doesn’t have a bank account just yet, now is the perfect time to open one. The bank account should be no-fee, and it’s where they’ll learn to sock away savings. As they get older, they’ll learn to use a debit card, and their wages from their part-time job will go automatically into this account. 

I opened my daughter’s bank account last week, and she’s two. The process required two pieces of government ID, and I’m the co-owner on her account. It took 45 minutes to set up, and now I can start taking her (and also my son; I opened his account when he was two as well) to the branch to teach them how to make a deposit.

While you’re at it, open an RESP, which is another fantastic savings tool for your kids’ future education. Even a small contribution into the plan gets matched by the government at a rate of 20 per cent (up to $500 per year of matching). Depending on your household income, you might also be eligible to receive the Canada Learning Bond, more free money to help boost your child’s RESP plan. The RESP money can be used by your child for almost any recognized post-secondary institution — trade or technical school, university and college. 

If you’ve got the flexibility to contribute even a little to an RESP, it will have a huge positive impact on your child’s future education costs. Over the years, you can share with your growing child how their RESP is growing too, and why you’ve made this investment for them.

Help them make a resume

Many teens benefit from working part-time (but, not too much) while they study to pass high school. Having their own money is a source of pride, and they often learn helpful skills for their lifetime in the process. If this is something your teen wants to do, they’ll need to make a resume, and you can help them. Have your teen start by asking AI to give them a basic template for a resume that’s suitable for a teen. From there, they can customize it, and put their own personal touch on the content. Review it with them, offer pointers and help them think through the best references they could use. It costs nothing to support your teen in this way, and there are massive benefits to them learning how to make a resume and keep it maintained.

Some parents have a deep knowledge of investing and others don’t. My advice is that no matter your experience level, at least introduce the concept of compound interest. This can be as simple as finding a quick YouTube video that explains it in a kid-friendly way. My mom taught me this concept, though she and my father didn’t have two nickels to rub together. When I was 10 she took me to the bank to buy a $100 Canada Savings Bond (using my birthday money). The bond matured a few years later worth about $130. It intrigued me that my money could make money like that, and all I had to do was buy the bond. I bought more bonds whenever I could. That one moment with my mom sparked my entire career in personal finance.

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.