Growing up with a single mother, who was one of Edmonton’s first female wealth advisors, Jane Alm learned how money works at a young age. Her mother taught her the value of hard work and budgeting, and how to avoid racking up debt, among other lessons.
“She made me strong. She made me resilient,” said Alm, senior wealth advisor with National Bank Financial Wealth Management and a member of the Angus Watt advisory group in Edmonton.
“I learned to always understand what I needed versus what I wanted.”
As a mother herself now, Alm has set out to teach her children the very same principles.
While other parents may not have the same level of financial literacy as an advisor, they too can play a key role in shaping their children’s understanding of money.
But where and when to start?
Parents should begin teaching their children about money as soon as they start to talk, Alm said, adding, “Habits are ingrained.” It’s important to note that every child is different, so they require approaches that are tailored to their capabilities and age group.
One exercise Alm recommended for parents with little kids is going to a grocery store with $10 in play money and asking their child to pick their favourite fruit, cereal and snack to spend it on.
After they hand over the play money required to purchase these items, the parent can help their child figure out whether they made the most cost-effective decisions or if they could have stretched their money some more by selecting cheaper items. They can also discuss the importance of saving.
“Every time they buy something, they have to give you some of that play money,” Alm said, “so they can see that tangibly — that if you spend it, it’s gone.”
With teenagers, she recommended giving them money to teach them how to manage it.
For example, Alm gave her son $200 to spend in one school year on clothes. She said he spent it all in one go on a pair of shoes, a pair of jeans and two shirts. Although those clothes had some noticeable wear and tear halfway through the year, she made her son wear them until the end of the school year to teach him that money is finite.
She gave him the same amount the following year. Her son came home with three pairs of shoes, four pairs of jeans and five shirts, along with some leftover money.
“He said, ‘Do you want it back?’ And I said, ‘No, keep it. You might need it for later in the year.’” Alm said.
“By the end of the school year, he still had money left and he said, ‘Do you want it back?’ And I said, ‘No, you’ve earned it. You can keep it. You now know how to manage money.’”
Communication is powerful
Parents can talk to adult children about more complex concepts such as how to invest, what dividends and capital gains are and what’s in their will, Alm suggested.
“We have to be able to talk to our kids about [these difficult topics], and we have to have our kids willing to talk to us about them,” she said.
Jeet Dhillon, senior portfolio manager with TD Wealth in Toronto, also recommended talking to children about money early on.
Parents can start young kids out with a piggy bank or youth bank account to show them what it means to spend and save money while familiarizing them with the banking system, she said.
They can also teach children discipline by having them do chores or eventually get a job to earn money and pay for things outside of their necessities, Dhillon recommended.
“Especially in a world today, where there’s just so much available through social media, … you need to have even more discipline about what you actually need versus what you want and making sure that there’s some balance there,” she said.
For adult children still at home, Dhillon suggested having them contribute to household expenses in some shape or form. If they’re studying and/or don’t have an income, they can contribute by helping out around the house.
“If they’re living at home longer, don’t let it be a free ride, because the kids are maybe getting that false sense of security that, OK, room and board are free, groceries are free, and now I can spend all the money that I have on everything else,” she said.
Teach them how to budget
Another exercise Dhillon recommended, which she did with her daughter who started university this year, is creating a budget on a spreadsheet with your child and reviewing it with them on a periodic basis. This, she said, will hold them accountable and make them aware of where their money is going.
“The transfer of wealth that’s going to happen to that next generation, it’s quite alarming in terms of the numbers,” Dhillon said. “You want to make sure that they are equipped to handle that wealth.”
Don’t be a teacher
The Canadian Foundation for Economic Education (CFEE) provides free financial literacy resources for Canadians of all ages, including resources for parents to discuss money with their kids. In 2018, the non-profit organization surveyed more than 6,000 — aged 12 to 17 — across Canada and asked them if they want to learn about money, and if so, from where.
Based on the survey findings, CFEE president Gary Rabbior said it was “extraordinarily clear that young people really want to learn about money” and given several options about where they wanted to learn about it, including TV, games and the internet, the No. 1 source that was selected was at home from their parents.
“They learn about so many other things, and they wonder, why the heck am I not learning about this?” he said.
But Rabbior emphasized that parents need to have money conversations with their children in a way that is fun and engaging, rather than trying to do directed learning with them like a teacher would.
“Trying to be a teacher … often turns kids off,” he said.
He suggested using real-world examples, such as shopping for replacement household items. Taking their kids shopping with them, parents can compare different items and explain to their children why they cost as much as they do, noting the labour and manufacturing process that goes into each.
Parents can then spark up another conversation about what their children want to do for a living based on their hobbies and interests, Rabbior said.
“You can take a small thing like that and just run with it and help them learn so many things in one fell swoop about different aspects of money and value,” he said.
Parents who have adult children that have moved back in with them should take advantage of the extra time they have with their offspring to guide them through their finances and career, Rabbior recommended. He noted that many young people in Canada pursue post-secondary degrees without considering their career prospects and whether their field of study aligns with their passions, but parents can help them navigate the evolving labour market.
And again, start them young, “because behaviour development is easier than behaviour modification,” Rabbior said.
“If you can build that money relationship, it can come in really handy later on, when kids are already comfortable enough coming to you if they’ve got a problem, if they’ve made a mistake, if they have an opportunity,” he said.
For parents who lack financial literacy themselves, Rabbior said there are many free resources available online that can help them find their footing.
“There’s a whole host of ways in which parents can quickly get up to speed and feel pretty smart when it comes to teaching their kids about money,” he said. “It doesn’t take a lot.”
Read this article, intially published on advisor.ca.