Financial literacy for kids
Time well spent.
As parents, helping children understand basic money management skills is one of the most important tasks you have. Here are four ways you can introduce them to some simple financial concepts.
1. More is better. Share your family values.
Parents, grandparents, and other family members can provide some of the building blocks to economic maturity by sharing their own experiences with money. You can also teach by example. When your child is with you shopping and you're tempted to buy something that wasn't planned, take the opportunity to explain that it's not in your budget, maybe not a good value and worth waiting for a lower price, or that you're going to continue to save up before buying it. Or, if you decide to go ahead with the purchase, how you will have to adjust your budget in order to accommodate it.
2. Pass the buck. Let them manage their own income.
It's important for your kids to have their own money to manage – and mismanage. Painful lessons tend to stick, whether it's losing cash for the first time through carelessness or blowing their entire allowance on an impulse purchase, then dealing with having nothing left for spending money.
An allowance is the best teaching tool. Use it to make kids responsible for purchases such as toys, movies and school lunches. Raises in allowances should be given only if a child's expenses increase and if they can demonstrate – by documenting their spending – that they really need it. They'll also need to learn that money is earned, not handed out. As they get older, encourage them to turn their interests into money-earning activities such as arts and crafts, babysitting, yard work and dog walking.
3. Invest time. Teach them to set goals and allocate money.
You can help your kids learn the discipline of saving with our Wishbank program. It's a simple way to show them ways to save, spend and share. You can also include them in some of your own spending choices. Discuss major household purchases with your kids and why you opted to buy one product over another. Ask them for their opinion based on comparison shopping.
4. Demonstrate interest. Show the power of compound growth.
Open a savings account in your child's name. Explain the concept of interest and why it's important to put money away every month. Create incentive by matching their savings and going over their statements with them. If you have online access, even better – your child can track his or her growing savings and use online calculators to project future growth. You could also choose a Term Deposit or another investment.
Older kids? Give them a portfolio.
For a teenager, you might consider gifting several shares of stocks† in industries that they relate to – perhaps their favourite clothing, movie production or tech company (who wouldn't like some Apple stocks?). Together you can follow the stock's performance and watch for news about the company. To make it happen, you'll need to open an account in your name held in trust for the child. This is because banking regulations don't allow accounts solely in the name of a child until they've reached the age of majority.
You can also choose a mutual fund* that invests in companies they'll recognize. Several companies offer mutual funds especially geared to children. These funds invest in child-friendly companies and send the young investors educational materials, so they begin to understand they're investing in businesses, not pieces of paper.
If do you buy individual stocks, try to pick companies that have dividend reinvestment programs so additional shares can be acquired each time dividends are paid. This way you won't have to worry about investing small amounts of money and you and your child will be amazed how these small bits accumulate over 10 or 20 years.