It can be awkward at times, but it’s important for parents to talk money with their children in order to help them develop good saving habits. While the basics of money management is often taught at school, it’s left to parents to help their kids develop positive saving habits. The earlier you can start teaching your kids about money, the better off they’re likely to be financially in the future. What can you do to start your kids on the path to financial success?
Identify the difference between a need and a want.
Differentiating wants and needs is the cornerstone of good money management. Therefore as parents, it’s important to look for opportunities to teach kids to understand the difference between a need and a want. For example, at the grocery store, pick a sugary snack and ask your child if it’s something that they want or need. Let them know that while the treat isn’t necessary for their survival, they might want it because they enjoy the taste.
Allow them to earn their own money.
Earn is the keyword is the keyword here. Paying your kids for doing work around the house lets them experience firsthand the connection between work and money – and understand the value of a dollar. An allowance will help them to see that if they want something, they need to work for it.
Talk about debt and credit.
As kids get older, it’s likely they’ll have student debt in order to help pay for their post-secondary education, and will use a credit card for daily purchases. Talking about debt and credit early helps them to understand good spending habits, and how interest affects loan repayment.
Teach children about interest by loaning them a small amount of money to make a purchase, and charge them 5% interest. After they’ve repaid the loan, ask your child to calculate the difference between the amount they paid back versus the amount they originally borrowed.
Share your saving strategies.
Most children only see their parents spending money, and don’t realize that there are things like mutual funds, tax-free savings accounts and RRSPs that can help to maximize savings. Give your kids a high level overview of the types of savings accounts available. You may even consider opening an account for your child, challenging them to save a certain amount per year.
Let them make mistakes.
If you’re constantly nagging your kids about how they use their money, they’ll never learn to be financially savvy on their own. While it can be challenging as a parent to allow your children to make their own mistakes, it’s absolutely necessary. After all, it’s better to make mistakes while they’re still young than when they’re out on their own. A kid is going to enjoy learning about money more if you let them make their own decisions.
Canada Protection Plan is a leading provider of No Medical Life Insurance. Call 1-877-851-9090 for your free no-obligation quote.
