Almost on a weekly basis young couples stop by my office asking about life insurance or investing. When we get into the nitty-gritty of their finances it usually becomes apparent that they are living paycheque to paycheque. They are “renting” their lifestyle while drowning in debt, like a hamster in a wheel going round and round and getting nowhere.
By managing their own finances properly, parents can set a good example for their kids. There are many opportunities to help break the debt cycle. It starts with the parents having a plan, then talking to their children about money issues and setting the example in the process. Take advantage of the everyday teachable money moments such as giving a six year old $2 and letting them choose which type of fruit to buy.
Teach them that they may have to wait to buy something: With all the advertising pressure to buy, buy, buy, it’s not an easy concept to learn, but one which will serve them well in life. Waiting and saving up the money to buy that first car can save them thousands in interest payments. Patience is a learned virtue, whether standing in line for a turn on the swing or getting the newest big screen TV.
Include your children in some financial decisions. Explain to them why you might buy a generic brand over a name brand, or talk about deals such as buying paper products in bulk on sale to get a cheaper price per item.
Get them hooked on long-term saving. To help shift them from short-term to long-term goals, introduce the concept of compound interest. Reinforce this by working through some scenarios with them. Once they are old enough, explain RRSPs, TFSAs and other savings options so they understand the power of tax-free and tax-deferred compounded growth.
Something as simple as three jars labeled “Spending”, “Saving” and “Sharing” is a great way to learn about waiting to buy something that they might want. Have them set goals such as that new toy they want to buy to reinforce patience. Every time they add money to the jar have them count it and record the amount, and talk to them about how much more is needed to reach their goal.
Explain the high costs of borrowing. Talk about the huge savings with vehicles by buying good used ones verses new, as the average Canadian new vehicle depreciates 50% within the first three years.
Once in high school talk to them about the cost of post-secondary education. There are lots of resources on line to help them understand the high costs involved. Encourage them to work at a part time job while in high school, and later in college or university.
Two good resource books by Gail Vaz-Oxlade are “Smart Money Kids” and “Saving for School.” Unfortunately, our educational system doesn’t have a lot of time in the curriculum to devote to teaching basic finance literacy, and I end up work with young families who are struggling with debt.
I would encourage all parents to get proactive and find at least one of the many books on this subject to review with your children.
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