Guide your kids toward financial autonomy

Une mère et sa fille consultent un ordinateur

There are a few subjects that parents are hesitant to bring up with their children, and money is definitely one of them. And yet, children with jobs can already start managing their money! So why not teach them the basics of money management so they can adopt good habits right from their first paycheque? Here’s how.

Talk to them about money!

Normally, money is a taboo subject. After all, who openly talks about their finances, income and savings? But children need to be exposed to these subjects so they can understand them. The sooner you start talking to them about money, the better equipped they will be to make smart decisions.

Give your kids small sums of money so they can get used to saving. For example, you can “hire” them for odd jobs around the house, or something more demanding like organizing the shed.

Kids also need to understand the value of property. Talk to them about the cost of living so they have something to go on. The rent or mortgage, groceries, school and leisure activities...nothing is free! Parents can also talk about their income without mentioning their financial concerns so as not to stress the kids out.

Encourage them to save

Saving is the key to a worry-free life. It’s like weight-training: the more you do it, the better the results. So how can you instill this habit in your kids? Here are 7 tips to point them in the right direction, starting from when they are little to the time they get their first job.

  1. Use the three-jar trick. Each child gets three jars to place their money in, divided into equal parts. The first jar is designated for money they can spend. The second is for money they will save. The third is to collect sums they will use for occasions, to buy gifts for friends on their birthdays, for example. 
  2. Set a good example. If you manage money soundly and saving is already a habit, your kids will be inspired by your behaviour. Your discipline (and the results) will make an impression on them.
  3. Show them how expenses can impact them. Make them understand that spending has consequences. For example, if your son buys a product of poor quality, the money will be wasted if the item breaks.  
  4. Teach them to ask questions before making a purchase. Will they use it often? Is it a smart choice? The idea is to separate needs from desires. 
  5. Refuse to make some expenses, as much for their sake as for yours. If kids see that their parents also go without what they want sometimes, they’ll understand that they need to think about each purchase. Sometimes, the smartest thing to do is to leave a store empty-handed!
  6. Invest in an RRSP. It allows you to receive the Canada Education Savings Grant (This hyperlink will open in a new tab) from the federal government. The government will pay 20% of the amount of contributions up to a maximum of $7,200 ($500 a year). What’s more, the money placed in an RRSP remains tax-free until retirement. It’s an easy way to save money for post-secondary education.
  7. Open a savings account as soon as the kids start receiving money. Bring them to the bank to make deposits. When they get their first job, encourage them to sign up for periodic savings. They can watch their balance increase every month. That’s pretty cool!

Zoom in on their first real paycheque

Your daughter just got her first job that pays $16 an hour. She might be in for quite the shock when she sees the payroll deduction. Take some time to explain her first paycheque so she knows where her money is going.

Explain how taxes work. Also discuss the contributions she makes to employment insurance and various other government plans. By understanding the payroll deduction on her pay stub, she’ll get a better understanding of the difference between her gross and net salary. One dollar earned doesn't mean a dollar in her pocket!

Find them a financial advisor

As soon as your young ones find a relatively stable job, they should seek out the expertise of a financial security advisor.

Why not recommend making an appointment? They’ll discover tips and products that can help their savings grow. For example, they may opt to invest part of their earnings in an RRSP and another in a TFSA or FHSA. A financial plan will help them reach their goals: travelling, purchasing a first home... It’s even better if a specialist can guide them as their income increases.

Discuss insurance

Insurance isn’t too appealing for young workers. It's nevertheless a safety net that can come in handy at any age.

Is your son just starting off in his career? He may have group insurance with his employer to cover medical and dental needs. Otherwise, he can get individual insurance.

The ideal time to take out life insurance is when we’re young. It protects the family and loved ones, and allows you to leave a tax-free amount in the event of death. This sum can be used to pay off debts or personal loans, for example.

Stress the importance of credit

Take the time to teach your kids about the concept of credit. Used responsibly and paid back within the prescribed time frame, credit can be an interesting way to finance major projects like paying for an education or starting a business.

Later, your credit record shows potential lenders that you can be trusted with a loan.

But you must remind them that credit is still a debt, and that making late payments will have an impact on the file. By understanding why we must pay back lenders on time, your kids will make it a habit.

Money is no longer a taboo subject among families!

Being aware of basic finances at an early age will help your kids make wise decisions over time. They can learn more about the subject as their income grows.

Financial autonomy is liberating, and your kids deserve to have that!