Out of all of the blogs I’ve written about our experience with Servus, this blog has been the most requested.
Money is an emotional subject for most people, couple that with the most important little people in your life and suddenly the topic of teaching your kids about money is one fraught with years of emotions.
Our personal philosophy is one of openness. Money is not a taboo topic in our house and we talk about it as often as it makes sense to do so. We also keep it age-appropriate. For instance, we are considering moving, and to tell Clara how much the houses we’re looking at cost doesn’t mean anything to her. Anything bigger than 20 is a BIG number for her, so instead, we tell her what that amount of money equates to in years of working.
As a side note, this is how we look at all of our major purchases. When you’re looking at large purchases it’s easy to go 5, 10, 20,000 over budget because it’s a small number amongst a bigger number. But if you equate that extra money to the amount of extra time you’ll have to work in your life, suddenly it’s more tangible.
For this blog, I asked all of you what were the questions you most wanted to know about teaching your kids about money. There were tons of answers and most revolved around the same themes. I then took these questions and asked our Servus advisor Brock to answer them. Below are his responses. We have also added in our personal opinion on a number of the questions to give you an idea of what we do in our house.
Probably more than any other topic we’ll discuss with Servus, how you teach your littles about money is very subjective and completely up to you and your personal value systems. There is no right or wrong answer, other than not teaching them at all will severely handicap them as they grow to be working adults.
Alright, let’s get started!
Where do I start with a 3-year-old? What language should I use? When should I start? Is three too young?
- Three is a great time to get young ones learning about money. While the concept itself may be a challenge at that age, the benefit of playing with coins and bills can help to get them familiarized with financial math and arithmetic.
- Some ways to drive the message home is going through the motions – 5 X 1.00 bills can purchase an item, or 4 X 0.25 = 1.00, etc.
- The biggest benefit is to get them playing with cash, money, piggy banks, etc. as it can be an easier lesson from mom and dad while a fun activity for them.
- When it comes to WHAT specific age, I guess it would depend on when the parents are comfortable to begin teaching basic arithmetic concepts to their children.
How do I put in place an allowance with actual tasks, not just giving them money?
Note from the Dashing Family: There are two schools of thought on this topic. Some people, like the person that asked this question, want money tied to work and only give their children allowance for chores or activities like the ones that Brock lists below.
Other people – like our family – think that learning about money in the first place is important and that it shouldn’t necessarily be tied to chores in the beginning. For us, chores and the upkeep of a house are important and our kids still perform age-appropriate chores, but tying those chores to an allowance makes them appear optional. If the kids don’t want to do them, they’ll just decide they’re ok with not getting an allowance that week. For us, chores are a basic requirement for living and being part of a household. Later, when they are older and have a grasp on money, we’ll introduce the concept of doing extra chores for money. Basic things like brushing teeth, doing dishes aren’t optional they need to be done, but an extra thing like washing the walls could be an extra job for an allowance.
- Parents can get creative with this one. For example:
- Good report card, exam grades = extra cash for their piggy bank
- Collecting recyclables, bottles, etc. Have them collect and take them to bottle depot and redeem for money.
- Chores around the house – vacuuming, cleaning their room, raking the yard, etc. (This one is tough – some parents use caution as some feel that doing chores ‘comes with the territory’ of living under your roof and shouldn’t be rewarded. I’d say a balance is just right strictly as an educational piece and to be used with discretion)
- Service opportunities – helping to go through the neighbourhood and collect waste, clean up, etc.
- Setting up a “payment plan” vs allowance. Instead of giving them a weekly allowance, have them earn it by having them complete a chore (clean room, etc.) by specific deadlines
How to instill intrinsic motivation vs doing chores for an allowance.
- This is tricky; rewarding every chore with money may lead to other complications, such as unrealistic expectations that everything the child does deserves payment. On the other hand, few savings & reward moments may miss some great learning opportunities that will help their financial fitness in later years. some things to consider perhaps are:
- Other motivations such as hitting academic milestones, personal achievements, etc.
- Some chores are rewarded, some aren’t. for example, a cleanroom is an expectation, however, mowing the lawn is incentivized.
- “group- matching” – if children save birthday or Christmas money from family for a financial goal, mom and dad will match contribution
How do I make money tangible when everything is digital now?
- Kids are VISUAL! Saving bills and change in a clear container is far more effective. This trick even works for adults who have a hard time budgeting. Debit/Credit cards – people spend on average 2X more than they would if they used cash. Let them see how much they have and earn by getting physical money. Once they’re old enough and have an understanding, a bank account can be introduced as the next learning opportunity.
When should I get them an account for themselves?
Note from Dashing Family: We feel like there isn’t a wrong time to get your kids a bank account. What changes is the kids involvement and understanding of that bank account. Start young and slowly get them more and more involved with it as they grow.
- Servus offers great account products for kids. A minor at any age can have a bank account so long as it is joint with mom and dad. We allow those who are 12 and older sole use of an account; however, that decision should come at the discretion of the parents. Mom and Dad can be joint and to monitor debit card usage and apply teaching moments where needed.
How do I teach my kids about why money and saving are necessary?
- Whether we like it or not, money is so fundamentally important in life as improper use of it can cause significant challenges to one’s quality of life. We use money for virtually everything we do – money means gas in our tanks, foods on our plates, vacations, hobbies, etc. We go to work primarily to be compensated so we can in turn use it for our wants and necessities.
- Regrettably, there is little formal education in our school systems which leaves many youth unprepared and overwhelmed when they first navigate the financial system. Teaching positive financial fitness habits is critical to ensure they can avoid major pitfalls and dependency on things such as credit cards, loans, or lines of credit. There is a time and a place for these things, however, improper habits can cause people to over-utilize with a considerable cost in interest, affordability, and repayment.
Do you steer them on what they should spend their money on or is it theirs to buy whatever?
- This may be more subjective, however, I would fall somewhere in between the two.
- Allowing some portion of their money (see 20% Question) to go towards what they want to spend on can help reinforce the transactional nature of money (item X costs __ $ dollars), and demonstrates nothing is ‘free’.
- When money ‘runs out,’ this can also be an effective reminder of the benefits of saving more for later on bigger item purchases. Money mistakes can be powerful learning opportunities! For example, spending my money on candy at the convenience store means I won’t be able to purchase at the toy store, or will have to take longer to buy it.
- As children get older, it is wise to get them thinking about more practical savings such as education, vehicle purchase, vacation savings, etc. Desires obviously change, so getting them thinking further ahead is critical.
How do I get my kids to budget? How do I teach them about budgeting?
Getting kids to budget can be a challenge since all their wants and needs come from the parents. On top of that, money itself is challenging to explain as a concept, especially at a young age. Some things that can help include:
- Setting a goal with kids. If there is an item at the store they really want, have them save. This could be fifty cents here or there if they’re young or having them save their allowance or rewards for doing comprehensive chores.
- Get visual! Debit cards and bank accounts are hard because kids can’t SEE their money. A clear container where they can see their change grow can help. Even if there is a special item they want to purchase, it may help to have parents buy the item and put it in a place where they can see it in the home. Once they have enough, they can “purchase” from mom and dad.
- Get different containers for different goals – if they’re saving up for a video game, put a picture or a label on it. Just like adults, adding a name to a savings account reduces the likelihood they will pull money out for non-related purchases.
- Use quick teaching moments as opportunities – if your kids are at the store and they want you to purchase something, ask them if they have enough to buy it. Show them the price; if they have enough at home, next trip to the store can reward them. Not only does this dissuade impulsive behaviour, but really drives home the lesson of working towards their goal. If they’re looking to derail their original goal to buy a pricier item for something else, remind them of their goal and how it will set them back in terms of time, cost, etc.
- Good/Bad behaviour comes from mom and dad – careful with your own budgeting/saving/spending. Kids are far more perceptive than we realize and will pick up everything you say and do, including money habits. If you know how to budget, they will learn by example.
How do I teach my kids to handle credit cards? My son is still paying for his debt 5 years later.
- This is such a great and important question. For starters, you can get a credit card ONLY when you turn 18 (legal age), however, the conversation around credit cards should happen well before their 18th birthday. A positive conversation revolves around the following:
- A credit card limit is not free money, but borrowed money.
- Credit cards are ideal to build credit at an early age. Ensuring proper use including active statement monitoring and payments. Proper use will set a consumer up for success when applying for bigger credit commitments such as a loan or mortgage.
- Reframe the purchase – 200.00 on my credit card means 200 less in my bank account. If you are prone to forget, set payment reminders or pay right away.
- Pay within 3 week grace period to avoid heavy interest. Standard is 19%, however punitive pricing for missed payments can be severe – as high as 29%!
- Good rule of thumb – if you are unable to repay within a manageable period (e.g. 3 week grace period, 3-6 months), avoid using a credit card if possible.
- If you are ever in a situation where you are unable to pay down your credit card, approach a financial advisor for help sooner rather than later. There are options available including consolidation loans, term loans, and fixed installment plans. An advisor would also be able to meet about finding a strategy to pay down credit cards through careful budgeting and spending.
How do you teach them to finance with repercussions without obsessing over it?
- This can be challenging as the effort to ensure kids are learning good behaviours it can come across as heavy-handed or obsessive. My impression is to maintain consistency, finding a balance on what can be a lesson and what you can live with. For example, focus only on bigger chores for a reward as opposed to every chore. If they receive 20.00 from a loved one, 5.00 can go to savings while the rest can be fun money, and if there is a setback on a financial goal (saving up to buy a game, etc.), use that as a good opportunity to reinforce positive values.
- My personal taking is that financial repercussions should be met with positive/constructive feedback as opposed to punishment; if they used too much of their savings for fun money, tell your children that it may be a little longer until they get what they want, but it is still within reach and still available when they hit that achievement.
- If they have achieved a financial goal, celebrate it! Make it a big deal that they achieved it. Positive reinforcement is a better bet that they’ll want to do it again, and constructive feedback when they missed the mark won’t discourage them enough to stop altogether.
Working with Servus and saving for The Big Share Contest has given us a lot of different opportunities to think about money and how we talk about it with the kids. You still have until the end of April to save and earn some entries!
Learn more about how to teach your kids about money and our financial journey with Servus:
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