The Importance Of Teaching Kids That Money Matters

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Posted in Debt Free In 30
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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Raising Cash Conscious Kids

On today's show I talked with Robin Taub, a Chartered Professional Accountant, financial literacy consultant, public speaker, blogger, and author of A Parent's Guide to Raising Money-Smart Kids. Robin discusses why it's so important to teach children about money, the challenges that parents face, and solutions for getting started.

Why should we teach kids about money?

I asked Robin whether it might be a waste of time to teach children about money management when they don't have any of their own.  She explained that the consequences for both parents and children are too high not to start teaching financial literacy from an early age.  For parents, supporting adult children using money that you've worked hard to save, especially during retirement when you had planned to relax, is not the ideal situation.  For kids, growing up without properly understanding money management creates a large gap in their life skills and reinforces bad habits that will affect all aspects of their future lives, including their relationships and even physical health.

To combat these consequences, Robin suggests that we start the discussion early.  What we often forget is that kids do have money from birthdays, holidays, or allowances and they will need to make choices about what to do with that money.  Make sure that any discussion that you have with them is appropriate for the age and maturity of the child.  Talk about small steps that they can take to save their money and explain why saving is an important part of earning money.

What challenges do parents face when it comes to financial literacy?

Money management isn't always easy and teaching it to someone else can be just as difficult.  There are many reasons that discussions about money might not take place, but it's important to overcome those challenges and make it a priority. In Robin's book she explains that challenges include a lack of knowledge by parents, not knowing how to approach the topic, limited opportunities to talk about money, or parents might not be good at money management themselves.  If any of these reasons are holding you back from speaking to your children about money, Robin recommends that you,

...look for teachable moments.

Look for opportunities to build a money lesson and learn with your child as you go along.  The best way to teach your child about finances is to act as a role model.  Actions speak louder than words and your child is absorbing everything that you do.  As Robin points out,

your kids are picking up these things by watching and listening and learning from you.

Is money a taboo topic?

For many, discussions about money can be uncomfortable and embarrassing.  Whether you're struggling with your finances or have a lot of money, it can be a sore subject.  However, by not talking about money, our kids are deprived of those lessons that might set them on the right path financially as they get older.  CPA Canada conducted research demonstrating that,

teens who talk about money with their parents at home, feel more optimistic and confident about their financial futures.

One reason that money is a taboo topic at home is that parents fear having to answer sensitive questions about their salary, mortgage, or bills.  Robin suggests that we address these questions but in an age appropriate way.  Speak in general terms about salaries in your industry or take a question about mortgages as an opportunity to discuss the housing market in general.  Children do not need to be privy to specific information, but they should not be shut out of the conversation about money.

Extending The Conversation To Include Young Adults

Filing Tax Returns

In her book, Robin suggests that teens file their tax returns for a number of reasons:

  1. To learn how to fill out tax forms properly, specifically employment forms.
  2. Entitlement to refundable tax credits.
  3. Start to build RRSP contribution room.

Credit Cards

An individual can get their own credit card once they reach 18 years of age.  However, Robin reminds us that even before that time, your child can have a supplemental card on your account. Keep in mind however, that all transactions will come from your account.  She lays out the pros and cons of getting a credit card at a young age:

Pros
  1. Build credit history.  A strong credit history can help to negotiate better interest rates.
  2. Convenience.
  3. Experience with the credit card cycle.
  4. Good introduction to paying bills.
Cons
  1. They may not understand that credit is borrowed money, leading to bad habits.
  2. High interest on unpaid credit card balances.
  3. Risk of fraud and identity theft - teens tend to be too trusting and over-share information that could put them at risk.

Let's Get Started Bonus Segment

Robin agreed to continue our conversation and discuss three healthy habits from her book, A Parent's Guide to Raising Money-Smart Kids.

Good Debt Vs. Bad Debt - Good debts are for purchases that could potentially increase in value, including assets like a house, car, investment in a business, or education.  Bad debts are for purchases of consumption items such as clothing, dinner out, or entertainment that do not increase in value. When buying these items, it is always important to have the money before you buy.  Knowing the difference between good debt and bad debt is necessary for making a financial plan, passing this knowledge on to your children, and modelling positive behaviours when it comes to money management.

Delayed Gratification -  It is just as important to know when to save.  Delayed gratification is the ability to wait for rewards. Robin explained that kids who demonstrate this ability tend to be successful later in life. Robin explains the importance of this life skill when it comes to good financial habits stating,

...that's what goal setting is all about.  It's really like spending less today in order to save for tomorrow.

Creating A United Money Front - When teaching our children about money management, making sure that we as parents are on the same page is necessary for the lesson to sink in.  Parents should make a plan about how to approach their child's request for money.  If the answer is different for each parent, your child might take advantage of this knowledge, especially as they get older.  To echo Robin's earlier argument, parents need to model positive financial behaviour.  By creating a united front, your child will realize that spending and saving money is a serious action and that knowing when to spend or save is a beneficial life skill.

Resources Mentioned 

Read the full transcript: Show 23 Financial Literacy Advice From Robin Taub

About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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