If you’ve ever said to your child, “Money doesn’t grow on trees!” then you understand the limited understanding most children have of family finances. We live in a society where it’s taboo to talk about money. Whatever your financial situation, the reality is that your kids probably don’t know exactly how much money you make—or where that money goes after you make it.
For kids, whose biggest purchase may be a $20 toy car, the concept that adults may make thousands of dollars and yet don’t have enough money to purchase whatever they want can be baffling. As kids grow older, their understanding of money will naturally expand, but without intentional guidance, they may still fall short of fully understanding how to make the most of their money by adulthood. In fact, studies show that 38% of Canadians between the ages of 45 and 64 have nothing saved for retirement, while a full 53% of Canadians aren’t sure they’re saving enough for retirement. This inability to conceptualize money needed for retirement and plan ahead can directly be tied to the fact that we don’t talk about our finances, and most of us had a limited financial education before being thrown into the world to sink or swim.
Part of parenting is avoiding the pitfalls of our own childhood. If our goal is to raise savvy children to become financially responsible adults, we have to parent intentionally. It’s possible to start teaching your children financial literacy from a very young age. This guide will help you teach children financial literacy at each stage of development.
For very young children, financial literacy is less about actual money and more about developing the mental tools necessary to handle money later in life. At this stage, your primary focuses should be
- Teaching your kids counting and number sense
- Setting boundaries and sticking to them
In practice, this means counting with your kids every day. It also means not fibbing about numbers—so if you tell your child they can get down from the table after three bites, don’t make them eat five. Doing so, while seemingly harmless, can harm their understanding of numbers. Why does “three bites” feel like more one day than it does another day?
As you teach them number sense, it’s also important to get them used to limits and to the word no. If you go into a toy store and tell them that they can have one toy, leave with only one toy. Setting limits—and sticking to them—will not only help you avoid tantrums in later years, but it will also set them up for the understanding that they can’t have everything they want the moment they want it.
By the time your child reaches primary school, they should be ready to begin learning the basics of using currency. At this point, teaching your child financial literacy can include the following activities:
- Teaching them to understand paper currency
- Introducing an allowance and first wallet
Board games like Monopoly are great for teaching children how to count out money and make change. If your kid isn’t quite ready to play a full game yet, have them be the banker while you play with older siblings. This is also a great age to start showing them how to price compare items at the grocery store. If you’re a couponing family, get your kids involved in finding coupons for some of their favorite grocery store items.
Primary school is also a great time to introduce an allowance to your child’s life. Without their own money, children may find it difficult to understand what it’s like to budget—or to run out of money. Make introducing an allowance special by having a chat with your kid about their increasing responsibilities, and even by buying them a special, grown-up wallet to keep their money in. Now, when your kids ask you to purchase something, instead of saying “no,” you can say, “I won’t buy it, but if you have enough money in your wallet, you can buy it.”
At first, your kids may spend every penny they earn as soon as they earn it. That’s okay. Let them make frivolous purchases with their money, and stick to telling them that they can make purchases if they have the money to do so. Model good behavior by saying—out loud—things like, “I’d really like this shirt, but I just bought a new book. Maybe next week I’ll spend my fun-money on a shirt instead.” Eventually, they’ll learn to be more discerning with their allowance.
By late elementary school, your child should have a basic understanding of how money works and should know enough math fundamentals to make sense of your family budget. This is a good age to start including kids—or at least not shooing them from the room—when you and your spouse have discussions about the family finances. At this age, financial literacy includes:
- Talking about money in front of your kids
- Showing kids how you balance your accounts
- Introducing kids to the idea of the family budget
Don’t be afraid to talk in front of your kids about things like mortgage payments and credit card bills. The key is to be calm and matter-of-fact. Our kids feed off our energy, so if you’re angry or upset every time you receive a bill, they’ll learn to associate anxiety with money.
Instead, sit your kids down when you pay your bills. Show them how you balance your accounts and how you set your family budget. Explain that some money is used to pay current bills, some money is used to pay off debts, some is saved for the future, and some can be used to do fun things now like going to the movies.
If you have a college account set aside for your kids, you can also talk to them about that. You can even give them the option to contribute a portion of their allowance towards their “for the future” account, just like you do every month. Don’t be upset if they don’t go for it quite yet; you can push that in later years.
When your kids leave primary school and start their teenage years, it becomes important to start preparing them for handling their own finances and planning for their futures. Financial literacy at this age should include:
- Setting a limit on what you’ll purchase them
- Starting a savings account
- Encouraging working for money
Sit your kid down and explain that now that they’re older and have a better understanding of money and finances, you’re going to put them in charge of certain purchases. Explain that you will continue providing them the things that they need, such as food, clothes, and school supplies, but that you’re going to save buying them things they want for holidays and birthdays. In between, if they want extra things, they need to pay for it themselves.
This is also a great time to talk to them about starting a savings account. Show them how much money you put towards saving for your future—including not just your savings account but also your retirement account—and have a conversation with them about their future goals, which may include buying a car one day, going to college, or having a house of their own. Once they have an idea of the things they should be saving for, go with them to the bank to set up a savings account. Agree on how much money they should be putting towards savings—perhaps half of their allowance—and help them stick to that from now on.
Although it can be a good idea to increase your kids’ allowance around the same time you begin expecting them to take more involvement in their financial life, it’s also a great time to talk to your kids about working for money. Explain that you work for money for the things that you want and need and that one day they’ll have to do the same. Then, give them opportunities to work for things they want now but don’t necessarily need. Perhaps allow them to mow the lawn every week for a set amount of money. This should be separate from their allowance, giving them ownership of how much money they earn and how hard they work to earn it.
When your child hits high school, they’re close to being an adult and handling financial decisions for themselves. This is a key time to begin talking to your child about high-end financial planning. Key things you should discuss with your child at this age include:
- Debt Management
- Job Benefits
As your children receive credit card offers in the mail—or you do—sit down with them, instead of just throwing the card offers out, and teach them to read the fine print. If you have debt, such as car payments or mortgages, show your teenagers how interest accrues over time and how much more you’re paying than the actual “purchase price.”
As your children enter the workforce for the first time, taking on part-time jobs, talk to them about considering more than just their dollars per hour when taking a job. Explain how job benefits work, and help them learn how much things like health insurance really cost.
Finally, if your child is heading to college, help them make a fiscally responsible decision by comparing award letters and costs of attendance side by side. Show them how much debt they stand to be in at the end of a 4-year degree at one university versus another university, and talk to them about ways, like taking out scholarships or working while in school, they can mitigate that debt.