You want the best for your kids. That’s why you send them off to school and mentor them at home.
Education is vital to success in life, but an important skill-set your kids likely won’t get at school is a dollars and sense education. Age-appropriate money-management skills that are best learned from you.
Six – 12 years
Make saving fun! Give them a special bank to fill with coins from you and others. Mark their graduation to a real bank account and give them an allowance tied to completing certain tasks.
A fixed amount is best because it teaches that serious choices need to be made when it comes to spending or saving. Get them to buy into pay-yourself-first strategy by saving at least ten percent of their allowance and explain how interest makes their money grow.
Other good money education tools are board games and interactive websites such as the Bank of Canada’s (www.bankofcanada.ca) and the Canadian Foundation for Economic Education’s (www.moneyandyouth.cfee.org).
Use shopping trips to discuss debit and credit with particular emphasis on the fact that most credit cards carry much higher interest rates than other forms of borrowing, such as a personal loan.
12 – 16 years
Give your kids a hand developing their own simple budget that includes keeping their tax receipts and statements so they can keep track of where their money went. Factor in a charitable giving component to show them how their money can have a positive impact on the community.
Give them a bonus allowance for extra work that must be invested. Introduce them to concepts of compounding and tax-saving through RRSP eligible investments and other long-term investments.
16 – 18 years
Be sure each child files a tax return as soon as they have a job that results in a T4. This will give them an up close and personal view of income taxes and they’ll build up room for future contributions RRSP eligible investments.
Co-sign for a low-limit credit card in their name. Monitor its use and stress the importance of making monthly payments to maintain their good credit rating while avoiding high interest rates and late fees.
Use their monthly credit card statements to discuss spending patterns and best uses for their purchasing power.
Involve your kids in family financial discussions and explain how your family budget must balance expenses and income. Introduce them to investment products such as stock, bonds, Guaranteed Investment Certificates, and registered and non-registered savings plans.
Explain investment concepts like portfolio diversification and risk/reward decisions as well as the role insurance plays in maintaining financial stability and family protection.
If you need tutorial assistance, call your professional adviser.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.
