Financial literacy is an essential life skill. The financial ecosystem in Canada may be different from your home country. As a newcomer settling in, you may have to learn a few things specific to Canadian finances such as building credit, investing, and saving options available in Canada. Financial literacy is important for everyone – not just for adults, but also your children.
When it comes to financial topics, chances are your children will learn about money much differently than you did. It’s never too early (or too late) to have a conversation with your child about financial literacy – you just need to find a way to relate it to their world.
In this article, we will outline the basics of financial literacy for kids and share a few ways to introduce them to money matters so they grow up to be financially confident adults in Canada.
What is financial literacy?
Financial literacy refers to the knowledge and application of personal finance concepts related to budgeting, saving, investing, and spending. Being financially literate makes you less vulnerable to fraud, less likely to fall in deep debt, and more likely to build wealth over time. It helps set a strong foundation to support life goals like education, retirement, buying a house, travelling, etc.
|Moving to Canada soon?
See How to plan your finances and prepare for life in Canada for tips on saving and budgeting so you can live a financially-stable life after moving to Canada.
The importance of teaching financial literacy to your children
Open conversations about personal finances can help kids build a secure financial future
In many cultures, adults do not talk about finances with children. But sometimes, having an open dialogue with your child can make all the difference. A global survey of 15-year-old students conducted by the Financial Consumer Agency of Canada (FCAC) found that teens who talked about finances with their parents, even just once a week, scored 33 points higher in financial literacy than those who did not. Higher levels of financial literacy in children are associated with confidence in keeping track of their account balance and planning their spending with consideration of their current financial situation – both key factors in building a financially secure future.
Start early; habits take time to develop
With financial literacy, studies suggest that the earlier you start, the better – it can be challenging to change a 12-year-old’s behavior and even more difficult to change a 17-year-old’s habits and expectations. So, it’s best to start while your kids are young because it helps inculcate healthy financial habits that they will carry into their teenage years and eventually, adulthood.
Financial literacy helps kids relate hard work with financial success
In addition to life skills gained from schoolwork or working a job, financial literacy can help your children understand the connection between hard work, endurance, resilience, and financial success. You can do this by providing learning opportunities for them in everyday life.
How to make learning about finances fun for kids
One of the best places to learn about money is at home. Children in different age groups understand and process information differently and hence, it’s important to teach them about money in a way that works best for their age group. Here are some of the things you can do to teach your kids financial literacy.
| Tip: Download Mydoh – a free money management app for parents and kids
Learning about financial literacy should be positive, fun, and engaging! Mydoh provides oversight as your kids earn real money through tasks and spend using their digital Smart Card. Securely add money from your bank account to your Mydoh Wallet and set a weekly allowance, create one-off or recurring tasks, and send money to your kids’ Mydoh Smart Card. Teach your kids about money in a fun and interesting way. Your kids can use the digital Smart Card anywhere that VISA is accepted. And since it’s a prepaid card, there’s no risk of debt. Teach your kids about money in a fun and interesting way.
Ages three to five: Toddlers and preschoolers
At this age, kids don’t fully grasp the concept of money, but you can introduce the basics and explain how it’s used.
- Introduce your child to different denominations of currency notes and coins; use real money as much as possible when shopping with your children.
- When they receive cash as gifts, encourage them to save money for a future purchase.
- Give them a piggy bank or labelled clear jars to put money aside for different goals: spend, save, donate, and invest.
- Help your child count and roll coins in paper wrappers to take to the bank together.
- Let your children make small purchase decisions such as choosing a piece of candy or a small toy each week. Let them know what they’re allowed to choose and how much they can spend before going to the store.
Ages six to nine: Grade schoolers
In this age group, kids usually understand that money is used to buy things, but they’re still figuring out and gaining an in-depth understanding of how money works.
- Empower them by opening a bank account so they can learn about depositing, withdrawing money, and interest earned.
- Have your child count and roll coins from their savings jar or piggy bank into paper bank wrappers. Let them exchange the coin rolls at the bank for dollar bills to save and spend.
- Discuss the basics of where money comes from and what to do with it. Take them to the ATM and explain how debit cards work, play board games together like ‘Monopoly’ and ‘The Game of Life.’
- Introduce concepts of budgeting. A few ways to teach budgeting are:
- If your kids run out of money to buy snacks, encourage them to plan ahead and pack snacks to take with them.
- If they need more money to buy something, allow them to do household chores to earn additional money.
- Encourage unpaid activities when allowance money is spent too quickly.
- Help them understand the difference between want versus need. This can lead to other conversations about spending, how much things cost, prioritizing, saving, and making informed choices.
Ages 10 to 12: Middle schoolers
At this age, kids want to be perceived as young adults; they are ready to take on more responsible money behavior and make financial decisions.
- Talk to your children about your own financial decisions – your initial instincts, how you reached your decision and the outcome.
- Dive deeper into the concept of budgeting; talk about your family or household budget.
- Help your kids plan a few long-term goals such as saving for a future car purchase or college education.
- Expand the number of purchases your kids are responsible for: buying clothing or shoes, hangouts with friends, entertainment, eating out, etc.
- Pay your kids a bi-weekly allowance and associate the allowance with accomplishments, such as doing a good job with household chores, achieving exemplary grades in school, etc.
Ages 13 to 16: Teenagers
At this age, kids become more independent, capable, and legally able to work. You can teach them how to make sound employment decisions, plan for future goals, and support core family values.
- Talk to your child about smart money management. Discuss how to budget for the family’s next major expense, such as a vacation and explain how to read electricity (hydro) and water bills.
- Let them borrow money from you when they need it, provided they are okay with paying a little interest. Set a timeline for repayment.
- Introduce your child to Government plans such as the Registered Education Savings Plan (RESP). Talk to them about how hard it is to save for college, and about where they may want to go and where they can afford to go. Let them know how much you will be funding, and explain that if they want to go somewhere else, they’ll have to work hard to figure out how.
- Encourage them to set up long-term savings goals for education, car purchase, etc. and big ticket items like electronics and concert tickets.
- Teach them to save by introducing a “match program.” For every dollar your child chooses to save from their babysitting or other jobs, you can match that amount. This will let them get familiar with the employer Registered Retirement Savings Plan (RRSP) matching program.
Ages 16 to 18: Young adults
By this age, kids have a good understanding of the basics of saving and spending. This is the time to help them take on more financial responsibilities so they can learn from experience and are well-prepared for the future.
- Focus on budgeting and planning out living expenses, vehicle expenses, etc.
- Review bank and credit card statements, explain how checking and savings accounts work, tell them how interest works, and go over various investment options.
- Introduce your child to the basics of investing. To help make the lesson relevant, give them the chance to choose two companies they know – like McDonald’s and Krispy Kreme, or Microsoft and Apple, for example. Then let them follow their stocks weekly or monthly.
- If your kids show adequate financial and personal maturity, increase their allowance to accommodate greater responsibilities.
- Discuss the various education-related government incentives available to them by opening an RESP and other options such as scholarships, grants and bursaries.
|Help your kids learn more about personal finance – Get free resources and tools provided by the Financial Consumer Agency (FCA) of Canada.
Financial literacy is usually not a very exciting topic for kids. Introducing concepts like allowances, chores and saving, forms a strong foundation for children as they move through their life, helping them budget, separate needs from wants, and make better choices for their financial and life goals.