Common Cents: Financial Literacy for Your Kids – a Simple Guide

by Dan Adair, Island Savings Brentwood Bay – 

I can’t recall the last time I used calculus or quadratic functions in my day-to-day life, but I can tell you that I’ve had several conversations about compound interest and mortgages already this week.

Granted, I am a financial advisor, but I think most Canadians would agree that financial topics like budgeting and credit come up more frequently in their daily lives than some of the subjects they studied in school. That’s why it’s important to teach our children about money at an early age.

Here are some financial literacy tips, broken down by age.

Ages 3 to 6. At this age, you’ll want to introduce some basic fundamentals such as how money is earned and what to do with it. Suggested actions:

• Give them a piggy bank separated into three sections: share, save and spend. Whenever the tooth fairy pays a visit, or they have some birthday money, it can be split evenly between the three areas.

• To teach the concept of earning, give them a little job and reward them with a small amount of money.

Ages 6 to 10. Introduce the concept of financial decision making and reinforce the importance of saving. Suggested actions:

• If your child is looking to purchase a larger item, help them develop a savings plan. This helps them recognize that sometimes we have to wait (save) for things we want.

• Begin to give them an allowance in exchange for completing chores. Their age plus $5 is a good rule of thumb.

Ages 10 to 14. Focus on the concept of debt at this age and demonstrate real-life examples of how money works. Suggested actions:

• A loan from the “Bank of Mom & Dad.” I’m not suggesting that you loan your child enough money to buy a new car, but helping them out with a small expense and having them pay you back over time is a great exercise.

• Explain a utility bill. If your child is leaving every light in the house on, the hydro bill may be wise. This shows that there are real costs to our behaviours and teaches them controllable ways to save money.

We tend to focus on concepts that are either too complex or too far away to be relevant for our children. Explaining how a mortgage works to a 12-year-old is going to result in blank stares from your child and a headache for you. By making money lessons fun and relevant, children are much more likely to pay attention.

Dan Adair is the Brentwood Bay branch manager at Island Savings,
a division of First West Credit Union.

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