Financial Literacy For Your Kids
As a parent, you are a role model for your kids – probably their most important role model. This is just as true in money matters as in other important aspects of life. The best way to raise money-smart kids is to be smart about money yourself…and to talk to them about how money works.
A valuable and easy to use guide book from The Canadian Institute of Chartered Accountants (CICA) is helping parents teach money matters in the home.
According to a recent study by the CICA, 78 per cent of Canadian parents surveyed have tried to teach their children financial management skills, but the majority (60 per cent) do not believe they have been very successful.
A Parent’s Guide to Raising Money-Smart Kidsis designed to put parents at ease when it comes to preparing their children for life’s important financial decisions.
“Parents can give their children an important advantage in life by starting in-home discussions about money mattersat an early age,” says Cairine Wilson, vice-president, Member Services, CICA. “The majority realizes this, but many Canadian parents are unsure about how to proceed.”
The CICA’s practical guide allows parents to quickly zero in on the information they need. Each chapter describes how to approach money management with a specific age group and discusses the essentials of financial literacy – earning, saving, spending, sharing and investing. Age groups covered are: children aged five to eight, pre-teens, teenagers and young adults.
The guide’s author is Robin Taub, a chartered accountant and highly experienced financial consultant who is a passionate advocate for financial literacy and life-long learning. Taub, a mother of two teenaged children, firmly believes that to be effective teachers, parents must first be good financial role models.
“How parents manage their money greatly influences their children,” says Taub. “The first chapter of the book outlines 10 healthy financial habits parents can use to keep their affairs in order and model responsible financial decision making for their children.”
Ten Healthy Habits of Financial Management
Raising money-smart kids starts with developing healthy financial habits and then modeling them for your kids. The “Ten Healthy Habits of Financial Management”, which are presented in detail in the CICA guide, are simple guidelines to help keep a family’s affairs in order. They can also open the door to discussions about money with children or teenagers.
1. Know where you stand financially. Figure out your net worth; everything you and your partner own less everything you owe. And keep an eye on your finances to make sure that your net worth is moving in the right direction with assets growing and debt shrinking.
2. Live within your means. Arguably, the most important lesson you can teach your kids is to spend less than you make and save the difference. The best way to teach this lesson is to live this way – to walk the talk.
3. Save/Pay yourself first. Take a set amount of money each month and have it automatically transferred from your pay cheque into a separate savings account. Over time, you will get used to living without this money and spend only what remains.
4. Understand the difference between good debt and bad debt. When used responsibly, credit can be a wonderful tool. Building a good credit history enables you to make big purchases, such as a car or house, at a reasonable interest rate. Incurring debt for the purpose of buying an asset – something that adds to your net worth and has the potential to go up in value, such as a house—is an example of good debt.
The flip-side is bad debt. Examples include borrowing to buy consumption goods with little resale value, such as furniture and appliances, TVs and clothes. It is always best to save for these types of purchases.
5. Set up a financial safety net. Every family should be prepared for a financial emergency. A good rule of thumb is to have three to six months of living expenses saved in cash reserves.
6. Know the difference between needs and wants. Help your kids understand the difference between needs and wants by asking them the following question: “Do you really need this, or would it just be nice to have? Would you spend your own money on it?”
7. Teach delayed gratification and set financial goals. Strong will-power and impulse control are important life skills that will help you manage your money effectively. Setting financial goals teaches delayed gratification and using your values to set goals makes them more compelling.
8. Track your spending. Keeping close track of how you spend your money can be a great reality check. People are often shocked to learn that how they are actually spending their money bears little resemblance to how they think they are spending their cash. Writing everything down is a powerful motivator to make better spending choices.
9. Save now for your children’s education. Take full advantage of tax-assisted programs offered by the government to help save for your children’s post-secondary education. The government created the Registered Education Savings Plan (RESP) for exactly this purpose.
10. Present a united money front. Parents should endeavor to present a united front when it comes to financial behaviour. If children or teenagers sense an opportunity to get what they want by exploiting the fact that their parents are not on the same page, they will take full advantage.
The CICA guide helps to remove the guess work involved in teaching money matters in the home. It is available in e-book and hard copy formats and can be obtained by visiting www.castore.ca/moneysmartkids.
SOURCE: Canadian Institute of Chartered Accountants