When is the right time to begin teaching kids about money? As an investment advisor, and as a father of two, I believe the earlier the better as it can help set young people up for financial success. Research shows that children form their money habits by age seven.1
Also, I believe that children who learn about managing money early on may become better equipped to live independently. For instance, they’re more aware of how to pay down or avoid debt, save for emergencies and plan for retirement.
In the past I have volunteered my time to teach grade-four kids about money concepts. In my experience, they’re always enthusiastic and engaged when we talk about money and finance-related concepts. During one classroom visit, we explored the differences between needs and wants. This helps kids prioritize finances.
I once asked the class, “Who can tell me the difference between a need and a want?” I gave a few examples to prime their thinking. “Water is a need, but a milkshake is a want.”
“Candy!” one young man called out. It was a day or two after Halloween, so trick or treating may have still been top of mind.
“That’s right,” I said. “Candy is a good example of a want. It’s nice to have it, but you don’t need it.” Most of the class nodded.
“No, Mr. Sommer. It’s not a want,” the student interjected. “Candy is definitely a need. It gives us energy, and we need energy to live. So we need candy to stay alive.” Most of his classmates again nodded.
“I want a Bugatti,” another earnest young student exclaimed. At least he didn’t try to persuade the class that an expensive sports car is a need.
Differing financial aspirations and priorities aside, children learn about money and finance in many ways. Engage the young people in your life using these activities.
Start young with repetition
In BC, kids start learning about money concepts in kindergarten as part of the current provincial curriculum. At this age, talking about financial concepts at home complements classroom learning.
A 20-year study revealed that the more books there are at home, the more likely a child will have a higher education level in contrast to children who are not exposed to books. Look for books focused on financial literacy concepts.
- Saving strategies for millennials: The earlier the better
- Saving strategies for generation X
- Plan in advance: Leave a lasting legacy
Keep it fun
Teaching kids about money and financial concepts should be engaging and enjoyable. Introduce coins and bills and then let kids pay for a small purchase and accept the change. You can even encourage them to set up a lemonade stand or try out some games that use play money.
Have an open family dialogue
Open discussions about money can help your children understand buying and selling decisions. Conversations can include:
- Explaining what money is and how spending works.
- Talking about setting goals and how to save for them.
- Discussing where to keep money (in a jar or piggy bank, and eventually at the bank).
- How to open a bank account and how interest works.
Teach through personal examples
Use your own experiences to create context and make the conversation more meaningful.
Practice what you preach
As a father of two and as an investment advisor, I practice what I preach. My clients wouldn’t take my advice seriously if they thought I was frivolous with my money. Lead by example, because kids are observant.
I encourage you to talk about money with your kids—it will help lead them to a successful financial future. And, they’ll thank you for it.
Bryan Sommer, CPA, CA, CFP, CIM, is a portfolio manager with CIBC Wood Gundy and holds the Chartered Professional Accountant designation.
1 Habit Formation and Learning in Young Children, Dr. David Whitebread and Dr. Sue Bingham, University of Cambridge, 2013.