There is a lack of financial education in Canada and for some reason, parents avoid talking to their children about money. In one study more than 1/3rd of parents do not discuss money with their kids. When did we decide that money talk was a taboo in the household?
Why don't parents talk to their children about money?
Who really knows, but here are some different thoughts on the question. Do you fit into any of these categories?
- Parents don't know how to manage money very well themselves. As a result, they can't get a handle on what to tell their kids. If parents are living paycheck-to-paycheck, building debt on charge cards and home equity loans, and not saving for the long term, how can they help their children structure a financial plan?
- Parents aren't practicing what they ought to be preaching. If parents are not using self-discipline by setting a good example for their kids, how can they hold their kids to a higher standard than they hold themselves? Modeling behavior takes a serious commitment. The fact is, savings rates are decreasing in Canada and personal debt levels are rising. It's tough to teach our kids if we can't be models of our own lessons.
- Their parents didn't talk to them about money. It's the ongoing cycle. If we as parents never learned it from our parents, how can we talk to our own kids about money? Money skills are not taught in school and maybe they should be. After all, it's a skill we all need. If we don't learn it at school and our parents never taught us, then where do we learn how to manage money?
How do we teach our children about money?
Being a parent of, I often sit at the dinner table talking to my boys about money issues. It's kind of funny that I teach adults about money but when it comes to my own kids, I find it difficult to know the best way to teach them about personal finance.
I've done a lot of reading on this area and there are lots of interesting ideas out there. I suggest asking other parents that have had some successes at teaching their kids about money. Here are some of my thoughts and philosophies:
- Start young. By the age of three, most kids start to become curious about money and how it works. This makes it an ideal time to model good spending habits. I was surprised to hear that many older preschoolers will want to start saving money. Get kids to open bank accounts as early as possible so they can watch and track the value of their money. We have lots of great discussions about their bank accounts.
- Teach through allowance. Provide an allowance so that they can have an income of their own in order to learn their own real-life money management lessons. Encourage them to save and spend. Even as adults, we need incentives to save like matching plans from employers, tax breaks for RRSPs. Factor in an incentive program to save with their allowance. Here are some articles I've written on allowance
- Get them thinking about budgets. As they get older, kids become full-fledged consumers and are ready to start learning how to make good spending choices. If you think your child is ready, put budget constraints on their choices. Help them to understand compromise and limited spending. Teach them to look for deals. If they buy that $10 toy now, it might take them longer to save up for that ipod. Let them make mistakes on their own.
- Get them investing early. It's never too early to invest. In fact, the sooner, the better. Studies have shown it matters less what you invest in and more on the fact that you are investing on a regular disciplined basis. Pick a stock that they might understand like NIKE or DISNEY. Pick a balanced mutual fund or for the really conservative person, use a basic money market account. Let them track these investments and get them into habits early.
- Help them understand the consequences of debt. Our society today is a society that has abused debts. It is so easy to borrow to spend these days and this concept of immediate gratification and delayed consequence is a dangerous one. As they get older make sure they understand how to avoid and manage debt effectively. Remember, you have to practice what you preach to be effective at this lesson.
Kids learn about money in two different ways: though their own experience and from watching their parents. Set your children up for financial success by grounding them in positive experiences and by being the good model they need. The best thing you can do is lead by example.