Strategies for developing smart money habits

Everyone needs to learn the value of a dollar and how to make money work toward our goals, even little kids. In fact, the sooner they understand the power of financial planning and the role money plays in their lives, the better.

Proactively engage the next generation and consider sharing these kid-friendly lessons, activities and tips.

The early years: five to nine

Lessons: Pre-kindergarten is a great time to start with the basics, including the idea that you must work to earn money in order to pay for items and services, as well as the value of different coins and bills. By age seven, children should be able to do some chores and earn enough allowance to buy small items. It’s important, too, to discuss needs and wants and why you might have to make choices (e.g., needs come before wants) or wait a little longer (to save for something you want more).

Activities

• GET TO WORK. Brainstorm different ways kids can earn money, like a lemonade stand, cookie booth or selling used toys and books.
• PLAY GAMES. Role-play using money-based games (e.g., restaurant owner and customer).
• START SAVING. Explain savings accounts and the concept of earning interest, and potentially open up a savings account in the child’s name.

Tip: Start saving habits early by stashing a percentage of any money received in each of four collection jars: one for saving, growing, spending and giving. The point is to build patience in order to later enjoy the benefits of disciplined saving.

Watch out for: Boring lessons. A short attention span demands fun learning activities.

The teen years: 10 to 15

Lessons: As children mature, discuss how your family values work and money. You can instill work ethics by allowing your preteen or teen to earn money by doing chores or errands, like washing cars, mowing lawns or babysitting. If you haven’t already, discuss opening a savings account for your child or grandchild and explain how interest can compound over time as they save toward midrange goals. Discuss, too, how to balance deposits and expenses to make sure your teen is living within his or her means. Children within this age range also should be able to conduct simple financial transactions, like writing a check, making a deposit, using an ATM and paying a bill.

Activities

• CHECK OUT CHECKING. Consider adding checking to your children’s accounts and to teach them how to balance their checkbook.
• DIVIDE AND CONQUER. Allocate a percentage of allowance or gift money toward saving, spending, investing and sharing buckets.
• CHIP IN. Parents can offer to “match” their child’s savings with a contribution of their own, say a quarter for every dollar saved.
• GET DEFENSIVE. Explain how to safeguard personal and financial information online and how to spot scams aimed at stealing financial information.

Tip: Now’s a good time to discuss credit and its alter ego – debt. Discuss when to use credit cards and how quickly interest adds up. If a credit or debit card is opened for an older teen, emphasize responsible use and how to keep personal information secure.

Young adulthood: 16 to 21

Lessons: Kids this age should start thinking about where to go to college, how to live independently and, yes, even planning for retirement. Start simply by involving your older teens or young adults to participate in household budgeting and talk about paying bills on time. Discuss line items like insurance and utilities and their costs, as well as the importance of automatically saving for long-term goals, like buying a house, setting up an emergency fund, or saving for retirement (remember how important compounding is!). Cover the basics of putting money to work through investing, smart borrowing and the after-tax effect on take-home pay and investment income.

Activities

• ADD IT UP. Utilize special calculators to estimate college costs and benefits. Discuss how much your clients are willing to contribute toward this important expense.
• GIVE CREDIT. Explain how credit history can affect a person’s ability to obtain credit or get a job. Free credit reports are available.
• INVEST IN THE FUTURE. Help adult children set up their RRSP.

Tip: Take this opportunity to help fill in any gaps in their financial education, offer guidance when it comes to RRSPs or other employer-sponsored retirement plans, and impart the benefits of long-term planning.

Watch out for: University graduates “boomeranging” home with the expectation of being pampered. Parents can establish boundaries and outline how their child can contribute to the household.