Teaching kids savvy money skills especially crucial these days

Start the process as soon as your kids start asking you to buy them things

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It has become crucial in today’s climate of rising costs to learn smart money skills to balance our budgets and not rely on credit to cover any shortfalls. But it’s not only a good idea for us to learn how to manage our money better, it’s just as important to teach our children.

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You can start this process as soon as your children start asking you to buy them things. This means they are ready to start learning about money, but before they can spend it, they need to have a way to earn it. An allowance is often the first way children receive money. Decide whether you want to pair it with age-appropriate tasks or give it strictly as a learning tool. I found that linking my children’s allowance to tasks required a lot of follow-up before I could pay them.

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Depending on what you can afford and what your child is expected to do with their allowance, a good rule of thumb is 50 cents to $1 per week per year of age. This means your four year old would get $4/week and your 10 year old would get $10/week.

Then choose how you want to administer the allowance.

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It will be more of a visual lesson to start by giving them cash to put in the piggy banks. As they get older and can understand the concept of electronic banking, you may want to switch to automatic weekly transfers to their own account or one that is held jointly with you.

Next, encourage your child to come up with a goal for something they would like to buy. This is a great way to teach them about savings and delayed gratification, which are worth mastering before they’re old enough to have access to credit.

For example, let’s say the toy they want costs $29.99 plus tax. In Manitoba, that comes to $33.59. Help them calculate how many weeks it will take to reach this goal based on the amount they receive from their weekly pay days. Consider creating a savings goal poster to help them visualize their progress.

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As children get older and become more interested in spending, teach them the time value of money. This aligns the time someone has to work to earn money to buy an item.

We’ve used this tactic with our own kids whenever they wanted a new item that wasn’t a necessity. It helped them understand the value of our time and that there are limitations to what we can afford. If your child feels they should be able to purchase the desired item more quickly, this process will provide a good opportunity to teach them to work harder for a more immediate payoff.

You can make it easier by allowing them to do extra tasks to earn extra spending money. However, avoid encouraging them to think that they are being paid to do their share of helping around the house. Instead, make sure they understand that the work they are doing is beyond what is usually expected and will therefore generate additional money.

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Another option to help your impatient child reach his goal faster while teaching him credit is to lend him the money. Before doing so, be sure to establish the terms of the loan: how much the payments will be, when they are due, and how long your child has to repay the debt. Don’t set the payment so high that they have no allowance left over to spend/save each week.

For an older child, factor in some interest to teach them the cost of the loan. Show your child their progress by tracking their payments until the loan is repaid. Let them know they can pay off the debt early if they want, and if you’re charging interest, this can teach them how doing so will reduce the total amount they have to pay.

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Taking your kids shopping regularly can help them learn to be smart shoppers. It provides a good opportunity for them to understand how much things cost, how comparison shopping works, how to budget within a limit, and the role marketing plays in their spending choices.

Share your best tips and tricks with them while they’re still excited to come shop with you, or have fun learning together how best to save or wait for what you want to go on sale.

Above all, remember that your children watch everything you do and learn their attitudes about money from you. Model good financial habits for them, but don’t worry if you don’t have everything figured out and find yourself relying on credit to supplement your income. Contact a non-profit credit counselor for free money management advice. It’s never too late to learn.

Sandra Fry is a Winnipeg-based credit counselor at the Credit Counseling Society, a not-for-profit organization that has been helping Canadians manage debt for more than 25 years.


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