How you can teach your children about financial literacy

Use these age-based strategies to teach your kids how finances work and how to manage their own money. 

What is financial literacy?

As your child grows, so too will their capacity to understand finances. Ongoing discussions of money matters enable your child to develop financial literacy, which is the decisions that we make based on our understanding of the basics of finances.

In our largely cashless society, it’s difficult for children to see the multiple financial decisions connected to the tap of a plastic card at the grocery checkout. You may not even think of the mental decisions you quickly make when shopping, from choosing to buy items on sale, visiting a grocery store because of low prices, buying items in bulk, to choosing to pay for the items with a credit card for reward points or a debit card. It’s helpful to unpack and explain these smaller financial decisions—and other mental math— so your kids can understand the financial cause and effect of each of these decisions.

Why is it important for children to learn about financial literacy?

Family lessons instill values in children, such as how to spend or how to save. We all have financial knowledge acquired from experiences and financial culture passed down from our families. It’s important to have open and ongoing discussions about financial literacy, so you can empower your children to become financially stable as adults. You’ll find some strategies to teach kids about money, the value of money and finances below.

When should you teach kids about finances/financial literacy?

Toddler to kindergarten (Ages 3 to 6)

At this stage, children are starting to understand numbers and counting. Introducing them to physical money (coins and bills) helps them grasp the concept. They’ll start to differentiate between wants and needs. This will be a helpful framework as they begin to understand saving vs. spending.

• You can play store with your child and have them purchase items by counting out real money.
• They can learn about the concept of saving with a piggy bank where they keep birthday money, tooth fairy money or other money. To encourage saving, you can pay them a small amount of “interest” at set intervals as a reward for being disciplined enough to save.
   

Primary grades (Ages 7 to 9)

At this stage, children begin to further differentiate between wants and needs and to understand saving for something. This is a great time to begin giving them a weekly or monthly allowance that allows them to be their own money manager. 

• Children can help you plan your shopping trips using a flyer app to better understand how much items cost. 
• You can bring a calculator on your shopping trip and ask them to help you figure out if buying two small boxes of cookies is a better deal than the buying one large box. These types of lesson help instill the importance of spending less money.
• Once you’ve established a budget for your shopping trip, have them add up the purchases as they’re added to the cart. This illustrates the importance of budgeting and discourages spontaneous purchases.
• If your child sees an item that was outside of your shopping trip’s budget, this is a good opportunity to teach them to save through delayed gratification. Planning to purchase an item next time will have them consider how to budget for the item in future trips.
   

Elementary school grades (Ages 10 to 12)

At this stage, pre-teens have further developed their math skills in school. You can translate this to financial literacy by teaching them about savings accounts, debit cards and credit cards. Review your own bank and credit card statements with them to help them understand deposits, withdrawals, interest and bill payments.

• Allow your child to open their own bank account and see how depositing their allowance or birthday money increases their balance. 
• Suggest which portion to save and which portion to spend of their allowance. Your emphasis on the importance of savings will help your child to begin budgeting, calculating tax and checking prices at multiple outlets before making a purchase.
• Let them visit the mall with a small amount of cash and make their own decisions about if or how to spend it. While they may splurge on a pricey fruit smoothie, the high price of the treat is a relatively small price to pay for an important, long-term financial lesson.
   

Middle school (Ages 13 to 15)

At this stage, your teen is probably earning a small income from babysitting, dog-walking or other odd jobs. This income can be used to help them build their wealth. Earning their own income allows a teen to equate hours of work with the cost of their streaming  subscriptions or brand-name clothing.

• Help your teen set long-term financial goals—whether that’s saving for a school trip, an upgraded phone or to help offset future post-secondary costs.
• Download a budgeting or money-tracking app to help your teen understand the effect of each decision to save or spend.
• Give your teen the bill at a restaurant and help them figure out how much to tip.
• Teens at this stage often get a debit card linked to their own bank account. This is the right time to have them understand how important it is to keep their PIN secure and take precautions against identity theft.
• Involve your teen in financial household discussions; they’ll begin to better understand how finances factor into everyday life and why financial literacy is so important.
   

Learning is important and it’s okay to allow your child to make mistakes—in a low-risk environment. A child who feels the regret of unwisely spending $20 is more likely to learn from that regret and exercise discipline in future opportunities to save money for a larger-ticket item.

High School (Ages 16+)

Teens in this stage often have their first part-time job and their own earnings. This allows them more discretionary income, which is an excellent way to exercise their independence—and practise the financial discipline to function in the real world.

• With your teen, examine their paystub to help them understand taxes and deductions.
• Help your teen comparison-shop for big ticket items like laptops, phones or cameras. Doing research to compare features, warranties, prices and monthly add-ons is a good practice for larger future purchases like a car or a house.
• Are they attending post-secondary education soon? If so, now is the time to have them set a budget to finance their education and set a savings goal. They can begin researching student loans if there are gaps in their budget. This will help them understand good debt (student loans) vs. bad debt (credit cards).
• Older teens in this age group may be interested in purchasing small amounts of stocks of select companies. This is a great learning opportunity for your teen.
   

Above all, it’s important to have open conversations with your child so they feel comfortable asking their money questions. You don’t need to be an expert. There’s a wealth of online resources that can help you learn together. Or you can contact me for advice.