When Jennifer Savill talks money with her 11-year-old daughter, the accredited financial planner is likely three steps ahead of many people. It's her job, after all.
But with Christmas ahead, and children expecting money and toys under the tree, many parents now consider teaching their little ones the ABCs of saving and spending. The more honest and open that talk is, the better, says Savill.
"If you want to teach people how to save, you need to have this conversation in the family," she says. "When you don't have a conversation about money you don't connect to how much does it cost to live later on in life."
Access to credit is readily available nowadays. That makes it easy for people to continue spending until they find themselves in debt. The earlier a person learns how to save money, the more successful and debtless they are, says Savill.
The importance of deferral
One of the most important lessons about saving is deferral. When her daughter wanted an iPad, Savill told her the family would wait with the purchase until they finished spending their income on a move.
Deferral teaches children to wait with a purchase. Sometimes, they may even reconsider if they want an item, she says.
"It's not that I couldn't afford to go buy an iPad. I said we have too much going on in our finances and we have to defer this decision until we know our own finances are sorted out," she says. "We have to know how the budget works even if we don't live on a budget."
Savill says parents should talk more openly about their income and family goals, such as money saved for a vacation. Children should learn how long it takes until money is earned, and what it is used for in the family.
She also suggests parents open a bank account for their child. That way they see their savings grow and get a sense of how much they spend, and how much they own.
Teaching them early
Talking about money is still a taboo in many families, says Chad Bodnar, a registered St. Albert psychologist. Yet children should learn about money as soon as they start receiving it.
He suggests that children between the ages of three and five are taught about needs and wants through games, by playing restaurant or store, where they learn that an apple "doesn't cost $2,000."
Older children (five or six years old) usually have a basic understanding of the monetary value of money, he says. At that age, parents can teach them the importance of putting money aside, and why they may have to save first before buying.
"Young kids will say 'I want that toy, I want that Star Wars LEGO set for $300,'" he says. "Show them how much money they get through birthday parties and how long it will take them to save and buy the LEGO set."
Bodnar adds that it's OK to say no to children if they want something. As adults, they will also have to take 'no' from their bosses and banks. Not saying it could lead to behavioural issues later on where "children don't understand that it takes time to save money."
"A lot of parents they offer to pay half of something but that doesn't happen in real life either," he says. "Instead of giving them half for the Xbox, give them a percentage as a bonus of their bank account once they have saved the money. Or give them interest, a flexible loan."
Bodnar suggests parents teach their children to look for smart bargains and compare prices in stores. They should not grow up thinking "shopping is only fun."
They should also let their children make mistakes. Impulsive buys are the quickest way to lose money. It's also one of the fastest ways for children to learn the importance of saving and managing accounts, he says.
"Don't save your kid, don't rescue them but let them experience the negativity of overspending," he says. "You want your kids to be smart with their money as they get older."
How to handle allowances
Children will have no source of income until they enter their teenage years. Instead, most parents provide their children with allowances early on, sometimes for free and sometimes in return for small services.
Bodnar suggests parents refrain from paying their children for everyday chores, such as making their bed or cleaning the dishes. Instead they should pay them for small "jobs," such as cleaning out the garage or painting the fence.
This gives the parent an opportunity to explain the importance of "doing the job well," he says. The child may only get paid once the parent inspects the work, or receive the money a few days later, "like a real paycheque at the end of a workweek."
"The whole idea with allowances is to teach kids what's called the late gratification," he says. "But day-to-day things like brushing your teeth? No, that should be a family member's responsibility. We don't get rewarded in real life for being good."
When it comes to deciding the amount of an allowance, parents should consider the age of a child and what's considered necessary pocket money.
A five-year-old can buy himself a treat for a few dollars. Later on, parents may increase the money as their children understand the use of money better, he says.
"It's important to remember, children are not miniature adults. So they are not able to understand the full impact that money will have on them until later on," he says. "That's why discussions around money are very important."
