Budgeting for Kids
Helping your children become financially responsible
If they don’t learn about money from you, how are your kids going to develop good financial habits? It seems comical that we will take the time to teach them how to ride a bike, but we don’t spend the same time on things like budgeting and saving. Consolidated Credit believes that an important part of being a parent is to teach your children about personal finance to ensure they develop good habits from a young age.
A child who knows the value of money will grow up to be an adult who does the same. Our simple tips will help you teach your kids fiscal responsibility.
However, many Canadian parents struggle themselves financially and they don’t have the tools necessary to help develop their children’s financial literacy. Consolidated Credit has put together some useful tips on common money topics that you can teach your children.
Allowances: Using money to learn about money
You can’t learn how to ride a bike without getting outside and doing it. The same is true when it comes to money. Allowances are a tool for parents to teach their kids about the role of money in our society and how to use it wisely.
An allowance can help with lessons about charity, saving, spending and hard work. Before you give out an allowance each week, why not take a few moments to impart some of your experiences with money to your child? You can start by sharing the benefits of donating to charity, saving more than spending, and working hard to earn money. Just giving an allowance each week without any education behind it will not fulfill the ultimate purpose of giving your children a solid foundation of financial knowledge for the future.
Encourage hard work and ingenuity
There’s a limit to how much you want to give your kids, but that doesn’t mean there is a limit to how much they can earn. Show your children that there are other ways to make money than just doing household chores.
The lemonade stand has endured for so long because it’s a great teaching tool for kids. That, and other neighbourhood jobs like cutting an elderly neighbour’s grass, shoveling snow, or babysitting, can help your child earn some extra money.
By encouraging these activities, you’ll help your child develop a strong work ethic and its relationship to money; a lesson which will help them throughout their life.
Show them how to save
Saving lessons can focus on two things – first, saving up for a specific purchase; and second, saving for the future-two very important goals. In the first scenario, there’s always some special item that becomes a “must-have” for young people. Whether it’s a new gaming system, instrument or piece of clothing, you can show your child how to create a savings plan until they can afford it. Have them set aside a little bit of money each week and keep track until they reach their goal. They’ll learn that small savings add up to large amounts in the end and they’ll enjoy their purchase even more because they’ve truly earned it.
Secondly, you can help your son or daughter get a head start by setting them up with a savings account at your local bank. This is also an opportunity to teach them about the wonders of interest and convey that their savings will grow and grow if they are patient.
Debit cards and online banking
Why avoid the tools your child will use when they become an adult? When you feel your child is ready for some extra responsibility, it may be time to help them get a debit card. Having a debit card will teach them that they can’t spend money they don’t have. You can couple this card with an introduction to Internet banking. It’s important to teach them the ins and outs of technology and banking so they are better prepared when they are out on their own.
This is always a good time to stress the importance of personal security. A strong password can be the difference between a secure bank account and becoming the victim of a cyber crime.
The final step: credit and debt
Unfortunately, financial literacy generally isn’t taught in many Canadian schools. Most young people head off to college or university with little experience in dealing with things like credit cards, loans and debt. They are underprepared for these real-life issues – and often get into trouble because of it.
As a parent, you can help your children by delving into topics that may have been taboo growing up in your household. Have your teenager join discussions you and your spouse have about money so they can gain an understanding of what issues they’ll be facing in the future. Your child can learn a lot by tagging along when you negotiate a car loan, deal with a real estate agent or meet with your investment advisor. This experience will make your child better prepared for the financial realities of adulthood.
And before you talk to your kids about money, check out our free booklet – Talking Money with your Kids.
For more information about personal finance, we have an entire section of our website dedicated to it. And, if you have any other questions or are struggling with debt, you can give us a call at 1-888-294-3130 or fill out a Free Debt Analysis online.