Teaching Kids About Money

There's no shortage of surveys out there to show more parents are finding themselves cash-crunched somewhere in between caring for their elderly parents while still supporting their adult children.

If kids are still living in the basement, it's not all bad. In fact, there may be a lot of good reasons for supporting them in this way. [See also: Adult Children Living in the Basement.]

"When you say living in the basement, it just sounds bad. It sounds like a child failed to thrive," says Susan Beacham, founder and CEO of Money Savvy Generation. "Families have been moving in together for generations and for many reasons."

Still, in an effort to grow smart children who won't have hang-ups about money and who, hopefully, won't be living in the basement at 30 because they have no other choices, I asked Beacham and Debbie Ammeter, vice president of advanced financial planning at Investors Group, what can be done to effectively build money skills and impart some financial know-how in children as they grow up.

Beacham's been teaching children about money for years. Inventor of the Money Savvy Pig (pictured) – an incredibly nifty little savings bank for children that is divided into four sections that allow kids to spend, save, donate and invest – Beacham points out first that money is an abstract concept for kids. "When talking to your kids about money, remember that it's abstract. You get it, they don't. Make it concrete."

You do this, she says, by having allowance contracts with them, budget contracts and by putting everything in writing. "Model behavior for them. If you want them to be responsible about paying their bills, be responsible about paying your own bills."

When first starting out, Ammeter recommends parents reflect a little on their own money education memories. "Was money talked about? Was it a positive thing? A negative thing? It might just give them some awareness of what they want their own child's experience to be."

Normalizing money as a topic of conversation along the way is something both women agree is an essential part of the education process so the subject doesn't automatically turn into a lecture, nagging, or come across as a criticism about the child's spending habits at some point.

"You want to be having an environment where it's natural to talk about money," says Ammeter. "I think that if you starting thinking about it a little bit, by being aware of it, you may just find things that work really well with your natural parenting style."

There are a lot of tips that can help get children off to a good start. For younger kids, talk about money, provide an allowance and link it to costs they will be expected to cover on their own. Discuss bank accounts, get them their own debit card and encourage them to start making decisions that will reinforce the message that money is not an unlimited resource.


As children get older:

• Talk to your college-age children about their course choices. "Counsel your child to choose a job they love but also to understand that they need to think about how they'll live on that starting salary," says Beacham. "There are wonderful occupations that will fulfill you emotionally but financially you are going to have to live a different lifestyle. Prepare them for that. Even a child of 18 to 21 isn't thinking that way. Start discussing their exit strategy."

• If older children are unemployed every summer, start to help them think in more entrepreneurial terms. "I think that's what's going to save this generation and the next generation, their ability to function as entrepreneurs," she says. "There is nothing wrong with being in college and being a summer babysitter."

• Talk to kids about how much money they expect to spend each month, particularly as they start to think about going away to college. "This is a teachable moment," says Beacham. Although this lesson begins much earlier with allowances, she says that first independence is an inflection point that parents can leverage and take advantage of. "It's very provocative. They're anxious to be independent."

• Let kids know in advance that you expect them to pay themselves from their own earnings at some point and begin to cut off the allowance as they grow older and approach their post-secondary education years.

• Given how costly divorce is, don't be afraid to discuss partner choices either. Don't expect them to thank you for bringing it up, but if a child appears to be more serious or more sophisticated in their dating, Beacham says it's a good time to discuss all the things you take on (good and bad habits, debts) when choosing a partner. "Granted, most kids are going to say oh GOD. Mother, you don't know anything," she laughs. "But you know what's going to happen? Your voice is going to play in their head anyway. Really, as a parent, that's all you want to do from day one. You want to seed their brain with a voice of reason on many things."

Related articles:
Adult Children Living in the Basement
All About Allowances


Kate McCaffery is a freelance writer in Toronto, Ontario. Visit mccaffery.ca/kate2.0/ for more information.