Monday, July 6, 2009

Kids and Money

Okay parents. We're in full summer mode, the kids are out of school and are busy finding new ways to spend your money.

No matter how many times you try to tell them that money does not, in fact, grow on trees, the message isn't getting through.

But first, if you as a parent have a difficult time communicating with your kids about money, you're not alone.

I want to emphasize how important this is: with a recent study citing that our consumer debt in Canada has swollen now to over $1.3 trillion dollars and with over 75% of Canadians possessing less than 3 months savings in a bank account, these adult problems with likely be passed on to our children.

We need to teach kids how to save, spend wisely and respect credit. But many parents find it extremely difficult to talk about finances at home, more difficult than talking to their kids about sex. Money (and might I add the lack of money) is the new taboo of today.

The problem is, most parents don't know where to start. It's not enough to burst into the occasional rant and rave about the cost of things when the kids want money to spend on yet another new video game, or they want to buy an expensive pair of jeans. That's not teaching kids about finances. That's just teaching them to go away and try you again when you might be in a better mood.

Parents need to start talking to their kids on a everyday basis about money.

So here's some suggestions for initiating the "money talk" with your child while having a little fun.

Step one: at any age, I encourage parents to have a piggy bank for their child. This should be a fun and simple account that encourages dialogue about coins, cash and foreign money. To ensure your child always has some fun with spending during their lifetime, allow your child to freely purchase what they desire from this bank without your approval.

Step two: at the age of around 5 - 7, depending on your child, introduce a short-term savings account. Whatever cash flow comes into your child's life (birthday gifts, allowances, etc.), discuss with them what percentage will be allocated to the piggy bank (for their own spending) and how much will be designated for the short-term savings account. The idea here is to teach your child that there are things in life that need to be "saved up" for as in adulthood. Make a list with your child of all the activities or items they wish to have in the next 30-90 days (a swim pass for the summer, a new game or pair of jeans) and figure out which ones will take priority and how your child will save up for them. Have them participate in deciding which to cross off this list, add, etc.

This summer, also try using cash as much as possible when shopping with your child. My fear is that our children will grow up not thinking that money grows on trees, but in little plastic cards such as credit and debit cards. When making purchases with cash, explain to your child the tangibility of such items and how long mom and dad had to work to purchase "x".

Step three: at the age of 15 or 16, I strongly encourage parents to set up a mock credit card with their child. Once they hit 18 and can get a real credit card of their own, the innocent mistakes that can and are made out the gate can haunt them on their credit report for 6 years.

This is a fake credit card extended by the "bank of mom and dad", but make it as official as possible. How much credit you're extending (it may only be $50 or much more), the interest associated, payment due dates, etc. That way, any mistakes made by your child can be easily corrected by you and when they are ready for the actual credit card, they'll be comfortable with responsible use of it.

Lastly, consider designating a monthly family money meeting. Consistency is the key - every 1st or 15th of the month and it doesn't need to last long. Set aside 5 minutes or more to discuss what's on your child's mind regarding finances, investments and how they feel about money (maybe there's been a layoff in your family or with a friend's parent and they're feeling scared.) And parents, don't worry if you don't have all the answers. With the plethora of information on the Internet and the ease of Googling almost anything you'd wish to know, you can learn together.

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