Money, credit and debt lessons for kids of all ages


Allowances, student loans, co-signing - parents are involved with their children's financial journey every step of the way. As such, it's important to teach your children budgeting, credit and debt lessons at every opportunity, so they can be prepared once they are on their own.

"The most important concept that kids must learn from an early age and into adulthood is the true value of money," says Isaiah Chan, a program manager at the Credit Counselling Society. "Many people run into financial difficulties that could've been preventable if they had a better understanding of the value of money."

So how do you instill this crucial concept? asked experts who are also parents to provide their wisdom.

For toddlers:
1. Introduce money into their play.

Let your toddlers get a feel for money by playing with fake bills or coins - or real ones, too, says Mark Kalinowski, a Calgary-based credit counsellor and father of two, ages 11 and 13.

Parents can play store or restaurant with their kids to help them learn about the exchange of money for goods.

"Let them touch and feel coins to get a sense that there are different values. Let them pay for something at a store," Kalinowski says. "They'll hand over the cash but also get the change back."

For young children, ages 4 to 8:
1. Practice with an allowance.

Around age 5, the experts say parents can introduce an allowance - roughly 50 cents to $1 a week, multiplied by their age. So, for a 4-year-old, you would give $2-$4 per week.

"This is a great way for kids to become comfortable handling money and making basic money decisions as young children and more complex decisions as they get older," says Scott Hannah, president of the Credit Counselling Society, and father of two young adult boys.

2. Teach them to stretch their dollar.
With a $5 allowance, kids may not understand how much - or how little - they can buy.

"The focus is looking to get more out of their money," says Richard Moxley, author of the Nine Rules of Credit, spokesman for eCredit Fix, and father of four - ages 3, 5, 7 and 9.

"For example, they could spend $6 for a Popsicle from the ice cream truck or they could buy a whole box from the store for $6 and even sell a few to friends to recover the costs."

3. Get them familiar with their bank account.
Each time you deposit your child's birthday, Christmas or other funds into their bank account, let them see the statement. Show them any interest they're earning, too.

That way, it doesn't feel like their money is simply disappearing.

"They are in charge of reviewing the statement to look at cash flow," Moxley says.

4. Teach them delayed gratification.
If your child wants a new bike right now, they're going to have to wait, says Chan, who doesn't have any children yet, but is an uncle to three little ones.

"Rather than giving in to demands all the time or simply denying requests, start small by teaching the concept of delayed gratification by walking kids through the impact various decisions would have," he says.

As kids get older, the concept gets more complex: your child can wait three months for mommy to save up for a new bike, one month for a used bike, or your child would have to sacrifice movie nights and dessert after dinner for a month to pay for a bike now.

For older children and teens, ages 9 to 18:
1. Focus on needs vs. wants.

It's at this age that kids are better able to discern what they need over what they want, says Pat White, executive director of Credit Counselling Canada.

When her daughter was 10, White took her back-to-school shopping, but tasked her with determining wants and needs. They even set a budget.

Everything was on course until her daughter ran into a brand-name sweatshirt. However, in the end, White's daughter said no to the sweatshirt.

"She's 30 now and still has that conversation with herself," she says. "It's a valuable discussion for every young person."

2. Give them responsibility.
With an allowance in tow, raise the stakes by giving kids responsibility for an item, such as paying for their monthly pizza lunch or bus tickets, Kalinowski says.

Include them in household talks about the budget. Show them some bills, like how much internet service or their phone costs.

3. Implement goal-setting.
Just as you siphon away funds for a new car, kids need to save for the things they want.

Set up three jars - one for spending, one for a goal, and one for gifts, charity or other future expenses, Kalinowski says. Each time your kids receive money, they'll have to decide where to allocate their funds.

4. Introduce interest, debt and credit.
Your kids mastered the multiplication table and have watched you tap your credit card daily. Now show them what's going on behind the scenes.

"Kids are more advanced, so introduce them to the idea of compound interest," Kalinowski says.

Show them your credit card's interest rate and have them figure out what happens when you miss a payment.

You could even loan them money for something, but ask that they pay it back by a certain date (say, two allowances from now). Explain to them that if they don't pay you back by the set date, you'll tack on "interest." If they miss the date by a week, you add a dollar to it, and so on. Of course, do this for a superfluous purchase, and not for an item they genuinely need.

5. Show them how to make more money.
Put your kids to work if their allowance isn't cutting it.

"My son is very interested in money, so I always encourage him to look at ways to monetize things that he loves to do," Moxley says.

It could be baking cupcakes, baby sitting or mowing the lawn. They could even take up a part-time job on weekends.

For young adults, ages 18-22:
1. Make savings automatic.

Once your kids are making their own money, get them in the habit of saving, even if it's a small sum every two weeks.

"Don't leave it up to them to save whenever they feel like they have enough money, because there's a good chance they will end up spending it instead," says Shawn Goddard, vice president of investments at Scotiabank, and father to two kids - ages 12 and 17.

2. Teach them to make smart purchases.
Whether you're shopping for laptops, a new bank account or a credit card, look at your options, says Brian McCabe, vice president of day to day banking at Scotiabank.

"Make sure they understand the fees and how the bank is going to reward them for their business," McCabe says. Teach them to make smart choices about the products they use.

2. Let them make mistakes - and share yours.
Give your kids room to learn from their own mistakes, Hannah says.

"There have been a number of occasions where our boys did not make the best money decisions while growing up," Hannah says. "While it would be easier to tell them not to make the decisions they made, they would not learn anything if we were constantly protecting them."

A $200 mistake now is better than a $20,000 mistake later.

Moxley plans on sharing his ups and downs with money with his kids, in the hope that they'll learn from his missteps, too.

3. Lead by example.
Your kids spent their lives watching how you managed the household and your family's purse strings, says Elena Jara, director of education at Credit Canada.

"Children learn by example by following what parents and other adults do," she said. If you set good examples, good money and credit management will be second nature to your children.

See related: 3 ways you may be stifling your child's financial independence, 5 money lessons -- and apps -- for kids and teens, How to negotiate financial expenses with kids
Published September 8, 2017

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