Teaching kids about money

Not only is it possible to educated children, they also point out that it is imperative that parents make the effort since financial literacy is not taught in schools and easy credit is making the concept of money as a finite resource increasingly abstract.

The Leger Marketing survey of 1,500 Canadian parents and grandparents found 61% are concerned about their offspring’s ability to manage money when they grow up. An identical U.S. survey found 77% of American parents and grandparents were anxious about whether their children will have the ability to manage money when they reach adulthood. High income earners and those between 35 and 44 years old expressed the greatest amount of concern for their children’s fiscal abilities — 71% of those between 35 and 44 were worried about the situation, as were 65% of those earning more than $60K annually.

Michelle Kay, CFP and senior retirement planning specialist at Edward Jones in Mississauga, says part of the problem is that those who earn more money also tend to spend more money and accumulate debt. “I think that parents who have a little bit more money have that comfort of borrowing a little bit more. Sometimes they can see this dynamic at work and they don’t want their children to go down the same road.”

Credit counsellor Laurie Campbell, a spokesperson for Credit Counselling Canada and executive director of Credit Counselling Service of Toronto, says that in addition to record debt levels, another cause of parents’ anxiety may be that money is a taboo subject. Parents don’t like to talk about money with their children, out of fear that the information could somehow get back to the proverbial Jones family.

“They’ve got this theory that we’d better not talk about it. We don’t want people to know that we’re not doing as well as we want them to think we’re doing and if we tell our children how we’re doing, they’re going to run around and tell their friends. It happens, my kids are perfect examples,” she says. “You need to help them understand, though. This is for their education, their understanding, so that when they get out in the real world they understand that they do need to pay for rent, there is something called income tax and that when you go to the grocery story it costs a lot of money. You need to comparison shop and you do need to make decisions about what you can or cannot buy.”

The trick, she says, is to make the concepts concrete by way of example. Rather than simply harping on the kids to turn off lights when they’re not in use, show them the electricity bill and make a game out of moving the numbers from month to month.

Other tricks, tips and games recommended include giving kids $5 or $10 during the next shopping trip to choose and buy specific parts of the family dinner, vegetables for example, and allow them to use the balance to buy a treat of their choosing. “Money needs to be talked about. It’s one of those things. You almost think if we don’t talk about sex and we don’t talk about drugs then these things won’t happen, but statistics show the opposite is true. If you don’t explain how money works and how much things cost when you go to the grocery store, tell them how much your mortgage is and understand the cost of turning on the lights, then [kids] really develop some idealistic views,” she says. “Children are quite capable of understanding what’s going on in the home. They’re quite adept, but if you’re not explaining it, they’re going to make it up on their own.”

One ADVISOR Group parent says he first discovered there was an issue when his daughter said “just go to the bank,” when told the family couldn’t afford something: “I’d let her push the buttons on the ATM machine for me a couple of times and she took that to mean the bank was a source of infinite funds. So I adopted the same practice my mother took with me, which was to sit down with the double entry ledger, show her my pay stub and explain, ‘this is how much comes in every two weeks, and now we’re going to pay the bills. Watch it disappear.’ I’d also let her fill in all the information on the cheque, except for the signature, explaining that it represented a binding contract for the money between me and the payee,” he says.

“My younger daughter is getting the online banking version of the lesson, which in some ways is easier to teach because she can see the balance go down every time I hit the Pay Bill button.”

Others suggest giving children a dollar figure for their back-to-school budget and encouraging them to make lists of all the things needed, from supplies to school clothes, then researching prices and discussing ways to stick to the budget, such as by setting priorities and putting some items on Christmas and birthday wish lists.

As another way of getting started, Credit Counselling Canada suggests teaching kids how to count money, give them opportunities to earn extra money by doing jobs around the house, and help them learn what things really cost by relating it to their earnings — they’ll figure out how many weeks of allowance or pay for their chores are needed to buy an $80 pair of jeans, for example. Then parents can take the kids to open a bank account and start to teach them about savings.

“Some people do this and some don’t,” says Campbell. “Some do for a little while but they find it exhausting. It is: it’s hard. It’s like anything else — you’re trying to teach your child how to ride a bike. You’re trying to teach your child how to swim. You’re trying to teach your child by helping with the homework. It’s something that takes time and it takes energy. At first kids don’t necessarily understand the concept. But the people who are doing it, in the end, their children have a much better understanding and appreciation of money and how to spend it.”

The new Edward Jones program aims to help clients along the way by giving each child an activity book that helps kids understand and set goals by creating wish lists and prioritizing those goals and what they cost. The book also encourages children to draw a picture that represents a charity that they would like to create, name the charity and describe how it helps people. They are then encouraged to find a real charity like the one they have created. In addition to the workbook, the program gives each child a large Edward Jones piggy bank with four coin slots — one for saving, one for spending, one for donations and one for investing. The company also plans to run seminars for parents and grandparents to teach them how to use the activity book and piggy bank to communicate with and teach their children about money.

“It gets them thinking. Kids sometimes think they want this toy, but they don’t think about how much it costs. What can we do with this dollar? We break it down, because kids don’t always think about saving. Typically we spend it. So how can we spend it? Instead of buying a toy, let’s think of the other things we can do. We can save it, we can donate it. It’s all in relation to what their goals are,” says Kay. “I learned about money growing up through my parents. I didn’t learn it any other way. It wasn’t through school and it wasn’t through any other organization. This is an opportunity for parents to take on that role for their kids and teach them about the importance of money.”

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com

(10/20/06)