Talking about money with your kids is one way you can really make a difference as a parent. No lectures required. The conversation can be as simple as asking a child, what do you want to do with your money now and in the future, and how do you plan to do it? Provide the benefit of your experience, tell them about your mistakes and give them a bit of latitude to learn from their own missteps. Here are some conversation starters.
What a break for us parents: Any bad money habits we might have are not passed down genetically.
Kids all have their natural tendencies as savers and spenders, but they’re totally teachable. You just have to talk to them to make sure they understand some basic things about money, jobs and the economy.
A non-profit group called the Canadian Foundation for Economic Education has declared Wednesday to be Talk With Our Kids About Money Day. The foundation has encouraged teachers, especially those with Grade 7 classes, to teach a lesson on a money topic, and it’s inviting parents to pitch in as well. Here’s my contribution to youth financial literacy – some conversation starters for parents and kids of all ages:
1. Saving versus spending
Start a dialogue, not a lecture. Ask your kids to tell you whether they see themselves as savers or spenders, and then offer your comments. Encourage the natural savers, and explain to the natural spenders that almost everything in life worth buying will require saving. You might also want to discuss savings rates. A basic rule is to save 10 per cent of disposable income, but kids may want to accelerate that to reach their goals faster.
2. Delayed gratification
Encourage your kids to save up for things they want. Then, when it’s time to buy, suggest they take an extra 24 hours to think about spending a big chunk of their savings.
3. The cost of moving out on your own
Teens will be keenly interested in this topic, but they naturally won’t have a clue how much rent and utilities cost. Browse the apartment rentals in your city on Kijiji.ca, and then compare the costs to what a minimum wage job would pay. Be sure to look at the cost of Internet and cellphone service, as well as hydro, water and heat.
4. (a) The cost of college or university (part one)
Statistics Canada says the average tuition for undergraduate university programs was almost $5,600 last year. Books and other costs can add $1,000 to $2,000 a year, and attending a school out of town adds another $10,000 to $12,000 – or more. The numbers won’t mean much to most kids, so put them in context. One year of university away from home equals two years’ worth of groceries for the family, six years’ worth of family vacations or the better part of a new car. For older kids, explain that a well-chosen university or college program is an investment that can help them get a good job.
4. (b) The cost of college or university (part two)
Have a talk about how the family will afford the cost of school. Mention your contributions to registered education savings plans if you’re able to make them, and then calculate how much extra cost there might be for your child to make up through working and student loans. Assure your kids that a gap year is A-okay as a way to earn money and gain experience before going to college or university.
5. How banks work
Explain that banks are profit-making businesses that look after your money at a cost. Whatever transaction you do with a bank, find out what fees are involved and whether there are any ways to avoid them. I recently had to explain to my 18-year-old that banks don’t let you withdraw money from a competitor’s ATM without steep fees.
6. How to save
Piggybanks for coins, bank accounts for paper money. If your kids are tall enough to see the numbers on an ATM keypad, they’re old enough to have a bank card.
7. How much cars cost
I’ve owned cars since I was 16 – that’s how I know what a money pit they are. If you have a car-minded kid, tell him or her about the cost of a licence, insurance and maintenance that can easily run from a $50 per oil change to a $600 brake job. Make sure older kids know about car-sharing services.
8. The benefits of entrepreneurialism
Even part-time jobs are hard to come by these days. So encourage your kids to consider earning money on their own by cutting grass, clearing snow, baby-sitting or pet-sitting.
9. Junk food is bad for you
It clogs your arteries and drains your bank account. Is there an expense that brings less lasting value than a fast-food meal?
10. Don’t feel sorry for yourself
However much money you have, there will always be people who have less and more than you.
ADVICE TO AVOID
And now for three topics you can lay off when talking money with your kids
Compound interest: Save it for a day when interest rates are high enough to have a noticeable effect on a child’s savings.
Canada Savings Bonds: The “Canada Premium Bond” is paying 1.0 per cent for the year starting April 1. Case closed.
Smartphones as a waste of money: They’re an incredibly useful communications tool in today’s world if you’re of high-school age or older.
Personal Finance Columnist
The Globe and Mail