Did You Know…
5 ways to prepare your kids for a bright financial future
Fast-forward to today. No one is trying to keep up with the Joneses. Instead, the game is to keep up with the Kardashians – that is, try to imitate that reality-TV glimpse into the lives of the ultra-rich and famous. Now it’s about striving to buy the same fancy designer handbags & sunglasses, Louboutin shoes, high-end cars, and so on. And that can break the bank indeed.
Reality shows like this are creating unrealistic spending habits for people, habits they usually can’t afford. Playing along at home means giving in to extravagant – and dangerous – wants. Dangerous because this isn’t just living beyond your means, it’s living way beyond any realistic means. Dangerous too because this glimpse of “reality” is everywhere, and it can affect your children’s sense of what realistic spending is all about.
Learning about money and finances at a young age is critical, especially with the influences of marketing media in all forms. With a realistic understanding of money children can learn to distinguish the difference between needs and wants, the importance of living within their means, and the sense of freedom that comes with fiscal responsibility. Financial freedom may mean different things to different kids, but at heart it’s knowing that they don’t have to give in to the unrealistic “ideals” that bombards them everywhere, and that they’ll have the money to do what they really want to do when the time comes.
As parents, we try to inspire our kids to succeed and do great things, often to become more economically successful than we are. There’s nothing wrong with aspiring to improve your financial condition, and to move up to that next higher socio-economic rung on the ladder. But it’s our job to teach our children the financial responsibility it takes to get there. It’s simple: don’t spend the money before you get there!
Submitted by Deborah McMillan, Founder & CEO of Knowledge Makes Cents.
5 ways to prepare your kids for a bright financial future
One of the best gifts you can give your children is a good repertoire of financial skills. Teach your kids smart spending, saving and even charging habits when they are young, and they will be less likely to find themselves in a financial bind as they enter adulthood.
Here are five tips on how to teach your kids responsible credit card usage.
- Start at an early age.
Kids are impressionable — if they see you modeling good money habits, even when you think they are too young to notice, they will be more likely to emulate them later. Seeing demonstrated savings habits and good financial skills from parents can be a huge influence on children, Deborah McMillan, founder and CEO of Knowledge Makes Cents, a Toronto-area company providing financial education classes to parents and children, said in an emailed response to questions.Additionally, habits formed at a young age are hard to break. When you start teaching your child to save, say, 10 per cent of his allowance each week when he is a young child, by the time he gets a job, that 10 per cent savings will be an automatic response.Finally, get them involved with the family finances as soon as you can, and don’t underestimate them. Of course, financial education for children should be age or grade appropriate. But, McMillan said, children as young as three can begin learning about finances, so long as the content is at their level. For instance, toddlers can start learning the difference between wants versus needs.
- Give your children an allowance.
Giving children an allowance is a good way to instill a sense of ownership, said McMillan. Every person manages money differently. Learning a money management style and making financial mistakes at a young age better prepare the child for adulthood, when they begin to have more money.
- Then, explain how to create and balance a budget.
Children should be taught how to budget as soon as they can understand the concept. Have your child make a list of all the things she will need in a month: money for pizza day at school? Change for vending machines? A treat at the mall? You can help her estimate how much each item will cost, and give her enough money to cover all the items on the first of the month.Tell her she must be able to cover all her needs with that money and, if there is any leftover, she should put half in savings and use the other half as she pleases. Once the money’s gone, it’s gone, until you start over next month.As an added benefit, it’s easier to explain to your child why he can’t have a new toy every time you go out if he understands that money isn’t infinite.
- Teach them delayed gratification.
No one likes to wait for something they really want, especially when they’ve got a pocket full of cash — or, later, plastic. Teaching children about delayed gratification when they’re young will help them stay on budget and save up for purchases when they’re older.Use a real-life example of a time when you had to delay gratification. Did you have to save up for, say, a new TV for the family room? Explain how you saved: was it a certain amount of money each month, or each paycheque? Then, show them how you were able to afford a bigger TV, or perhaps better quality, by waiting, rather than buying a lower-end product right away. Explain how much money you saved by saving up to pay for the purchase outright instead of charging it to a credit card.
- Be honest about how credit works.
Learning about credit usage is extremely important, said McMillan. Children often don’t recognize credit and debit cards are tied to real money — they see mom or dad use a card to pay for groceries or to withdraw seemingly unlimited amounts of cash from the ATM. Explaining how plastic cards work and how credit card bills have to be paid monthly will help your child once he has his own bills to payOnce you’ve established a monthly budget-and-allowance situation for your pre-teen children, explain that if they really need or want something that is out of their price range, they can borrow the money from you — but they must pay you back. Give them the choice of skipping next month’s allowance to pay their debt, or receiving half their allowance for the next two months. Explain that this is how credit works: it’s a loan, not free cash.When your kids reach their teens, you can start allowing them to sit with you while you pay bills. It’s best if you pay your credit card bill in full, but if you carry over a balance, explain why and show your child how much interest will be added the next month. Not only will this teach your child how credit works, but introduces your child to the world of bill pay, which can be intimidating to a newcomer.
Teaching your kids about finances doesn’t have to be hard, and you don’t need to use “kid gloves” as much as you think. You’ll be surprised at how much even young children can learn and retain. Your best bet is to model the behaviour you hope your children will display later in life, be as honest as possible and include your kids in your family finances. That way, they can see real world examples and ask all their questions while they’re still living with you, rather than relying on friends or other unreliable sources once they leave home.
By Vanessa Page
Published: September 28, 2016
Give your kids the gift of financial literacy this Christmas
The timing couldn’t be better. November is Financial Literacy Month, just ahead of the crazy holiday spending spree of December. It’s an opportunity to take a breath, sit down, set a budget and stick to it.
Overspending at Christmas time can take months to recover from – savings accounts dip low, and credit card bills flood in. So November’s a great time to apply your financial smarts and be sensible about your purchases. I also believe it’s a great time to teach your kids how to budget and handle money, which is what “financial literacy” is all about. Christmas time is a fun time for kids, of course. This is when we hear “I need this, and want this, and really really want that.” But the holiday season should also be about giving back and sharing with others. Getting what you want is great and so much fun, but as parents we need to be good role models and give them messages that holidays are more importantly about spending time with family and friends. So what can we do to help teach them about money during this free-for-all spending spree?
First off, help them understand that people give gifts as a token of affection. Involve or work with them to make a list of who they (or the family as a whole) want to give presents to, and show them how to budget for it – help them figure out the overall cost and then plan to save, or at least to contribute to the cost, especially for younger kids. Put a spending limit on each item that fits into your overall budget for the holidays. It’s up to the parents if you want to share the spending limit amounts on each gift with your kids. The last thing you want is your little one to blurt out as a relative is opening her Christmas gift “Grandma, we only spent $8 on your gift!!” As parents, we need to be just as reasonable about our own behavior. Showering your kids with excessive or expensive gifts doesn’t mean you love them more. Instead, talk with them to help them understand the difference between needs and wants, that both have to be paid for, and that money is not free. Balance that with guidance on both saving and sharing/giving back.
Kids learn about money from watching parents – their parents’ money habits and discussions about money. Parents need to be aware of this at home especially during this season. Teaching your kids good money skills and habit is teaching them financial literacy, which is an investment towards their successful financial future.
Especially during one of the best teaching opportunity like Christmas, financial literacy is your
greatest gift to your kids!
Setting Your Kids Up for Financial Success
It’s no secret that our kids learn as much from our attitudes as from our actions. If we have a positive outlook on life, family, and health, chances are our children will grow up with the same outlook. But if we’re anxious, stressed and negative, it’s likely they’ll turn out the same way.
One of the things that gives us the most anxiety is finances. If children constantly hear us say “we can’t afford anything”, “there’s not enough money to go around”, “you have to work too hard to get money”, etc. they’ll grow up with a very negative view of money and, by extension, success. It’s what T. Harv Eker, author of Secrets of the Millionaire Mind, calls a “money and success blueprint.” “You can know everything about…stocks, real estate, and the world of finance, ” he says, “but if your money blueprint is not set for a high level of success, you will never have a lot of money – and if somehow you do, you will most likely lose it!” He also says “There is a secret psychology to money. Most people don’t know about it. That’s why most people never become financially successful. A lack of money is not the problem; it is merely a symptom of what’s going on inside you.”
Louise L. Hay, in her book “I Can Do It” calls this negative blueprint Poverty Thinking, and it can infect children at their most impressionable ages. It’s a belief system created mostly by what they hear, see and experience about money from the adults closest to them. Jack Canfield, author of The Success Principles, adds “These [negative] messages from early childhood can actually sabotage and dilute [their] later financial success”. The other day, I asked a group of 8 year olds “Who wants to be rich when you grow up?” All but one student enthusiastically raised their hands. That student said to me “I don’t want to be rich because rich people are evil”. It’s important to not only teach kids basic financial literacy and money math, but encourage and believe in their financial success. As parents, we want our kids to be successful and not have financial hardship or worries. Don’t we also want them to be confident that the world is their oyster and that they are able and capable of achieving financial freedom if they so choose to? Feed them positive, encouraging messages about money and they’ll start out on the right path to financial – and personal – success!
Financially Smart Kids: Summed up in One Word…
Kids form habits – good and bad – at an early age. Their habits, including money habits, are pretty well set by age seven. That’s why financial literacy for young children is so important. Kids need to learn the financial knowledge about good money skills before the successful lifelong habits can be formed.
And that job can’t be taken on by schools or financial literacy programs alone. Parents are the number one influence on how children deal with money, so kids need to gain hands-on financial experience at home with the support and encouragement of their parents. Let’s take the example of healthy eating habits. Children learn about healthy eating based on the Canadian Food Guide in schools. Kids are taught to eat more fruits and vegetables and balanced meals but if the parents are not reinforcing the same message at home and the fridge and pantry at home are not stocked with nutritious foods, then that knowledge is wasted. The kids’ healthy-eating knowledge doesn’t become a lifelong habit of healthy eating.
At Knowledge Makes Cents, kids as early as junior kindergarten gain financial knowledge and skills through fun games, activities and role playing. Children as young as 3 years old already understand the purchasing power of money. We teach them the flip side of the money equation (i.e. earning vs. spending) so they can build a balanced knowledge about money. Just as importantly, our parent workshops help adults become the best “Chief Financial Parent” at home.
Habit is defined as “a settled or regular tendency or practice, especially one that is hard to give up.” The partnership of financial literacy and hands-on experience is key to kids forming successful lifelong money habits. And with great financial habits under their belts, kids (and parents alike) can get on track to their own financial freedom.
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