Teaching your kids money-management skills

Laurie Campbell has spent 20 years helping people with money problems — and from what she’s seen, Canadians aren’t getting any wiser. “We are seeing record debt levels,” says the executive director of Credit Canada, a non-profit group that provides credit counselling. Today, the average family saves a mere three percent of before-tax income, compared with 10 percent in 1990. “One of the reasons we see so many Canadians in financial difficulty is that they didn’t learn these lessons at home.” Even if your own mom and dad never taught you to manage money, you can still set your kids on the road to financial success. Here’s how to lay the groundwork at any age:

Make your financial life visible Campbell has given presentations to high school students who don’t even know what income taxes are. “Explain these things to them: ‘We have a mortgage, we pay taxes, we pay this much for hydro, heat, groceries,’” she says. Financial columnist and broadcaster Alison Griffiths encourages parents to share the rationale behind their choices: “I’m not going to withdraw cash from another bank’s ATM because it costs $1.50.” Just try not to sound like you’re complaining. “Kids tune out if you say, ‘We can’t afford that.’” Instead, explain that another store sells this product for less, or that you prefer to save up for large items rather than buying them with a credit card.

Let kids handle real money Give young kids their allowance in coins so that money becomes tangible: By about four or five, they can understand that one loonie is worth the same as four quarters. At nine or 10, they’re old enough for a bank account and even a debit card. “I like kids to use debit cards as soon as possible,” says Griffiths. “The minute your children are on their own, they’re going to be making transactions with plastic, and increasingly on their cellphones and the Internet. If you don’t start teaching them how, they’re going to run into trouble.”

Take them shopping Once kids can handle scissors, they can clip coupons, and by the time they’re computer-savvy preteens, they can find coupons at websites such as save.ca. Older kids can also learn to compare prices and decide which is the better deal. “You’re not just telling them about money, you’re involving them. And that’s the key,” Griffiths says.

Help kids save successfully Most eight-year-olds don’t have the patience to save for a year to buy a skateboard, so Campbell suggests kids this age stick to goals of a month or so. Help older kids buy big-ticket items by matching any amount they save on their own. Doing so tells them, “I’ve got faith in your ability to save for this,” notes Griffiths. She also suggests that the whole family save loose change in a jar and use it for an activity, such as a vacation. Kids can watch the fund grow and feel they’re contributing.

Explain debt to your kids Even preteens may have trouble understanding how a mortgage works, but most kids can appreciate that borrowing money has consequences. Use those “buy now, pay later” ads as teachable moments. “What a great opportunity to sit down and do the math,” says Campbell. Show them that a $1,000 TV costs $1,200 if you accumulate one year’s interest at 20 percent on the store’s credit card.