22 Mar How to raise financially literate children
At a time when Canadian household debt is on the rise (167.6% in Q2 2016) and more Canadians are living paycheque to paycheque, it’s become even more important to make sound financial decisions.
Teaching children about saving, managing debt and investing can help set them up for financial success as adults. If you’d like to start developing your child’s financial literacy, here are a few ways to get started:
Encourage your kids to see the value of money
Use money to teach money. For younger children, play counting games or use toy money to introduce the concept of value. Draw on real world examples like trips to the store to highlight the price of your child’s favourite food or the toy they would like to buy. When children can associate tangible things with the concept of money, they’ll have a better understanding of its meaning.
Create a budget
Only 47% of Canadians use a budget to plan their spending, but it is a great way to manage your finances. When your children begin to earn an allowance or get a part-time job, sit down with them to create a budget which includes their sources of income and expenses. Emphasize the importance of saving and teach them to differentiate between needs and wants.
Include your children in discussions about family finances
As your children get older, start to include them in more discussions about the family’s finances. If you have set up an RESP for them, show them the statements and discuss how the investment is doing. When you receive a mortgage statement, use it as an opportunity to discuss mortgage payments, interest and principal. Talking to them about finances will help familiarize them with these concepts and reiterate the value of money.
Open a mutual fund account for them
The best way for young people to learn about investments is to let them delve right in. Start by experimenting with a mock portfolio that includes a few companies that they may be familiar with. From there, you can open a mutual fund account for them and match every dollar they invest with your own. You may also want to introduce them to your financial advisor and bring them to a client meeting. Show your child that financial advice is a part of financial success.
Gradually introduce them to credit
A 2015 Ipsos Reid survey found that one in three Canadians view credit card debt as a significant source of stress. Help your children avoid that stress by teaching them how to manage credit. Start with a pre-paid credit card that is loaded with money from their allowance or job to illustrate that a credit card is not free money. Review the monthly statements with them and discuss interest rates, as well as the consequences of carrying a balance.
Aristotle once said, “Good habits formed at youth make all the difference.” By introducing good financial habits to children at an early age and building upon that knowledge into their youth, parents can prepare their children to go into adulthood with confidence. What piece of financial advice would you have liked to receive in your youth?
To read this article by Mackenzie Investments online, CLICK HERE. If you have questions be sure to contact Harry Perler or David Olejnik.