Don’t eat modelling clay? An easy talk. The merits of diversification? Maybe not so much. Teaching your kids basic money skills is an important step toward building their financial confidence, and it doesn’t have to be complicated.
Discussing money with your kids isn’t difficult if you know the trick: Keep things simple and talk about what matters to them.
In raising four children, Bryan and Sarah Baeumler recognize the value in talking about money with kids. Here, they share some of the approaches they’ve taken to teach their children some fundamentals about money — fundamentals they hope will stick with them to adulthood.
1. The “Spend Some, save Some” Approach
Not all kids are super keen to put all of their hard-earned money into savings. Children — and adults too, for that matter — need some instant gratification. They like to have some kind of immediate reward for their work.
This is where you can talk about balancing spending with saving, and how compartmentalizing money earned can help them enjoy the fruits of their labour, while also saving for a bigger goal.
“Having a savings account might not be as cool as having the latest toy, but understanding the value of things in the short term versus the long term is important. And if you save and raise the money for something you really want, you develop a pride of ownership,” says Bryan.
As we get older and our financial responsibilities increase, compartmentalizing income is an important way to meet all of our goals — making it a great lesson to introduce to kids.
2. The Talk about Compound Interest
Don’t worry — this approach doesn’t involve complicated graphs, formulas or breaking out a scientific calculator. The general concept of compound interest is one that can open young eyes to the magic of saving — and one the Baeumlers introduced to son Quintyn when he wanted to spend money he had earned.
“Quintyn wanted to buy a skim board — which would have used up all his income. Instead, we sat down and watched a simple video about compound interest, in which he saw how much money he could earn if he invested that cash instead of spending it all.”
While compound interest might seem like a complicated topic, kids can easily understand it: Earn money (interest) on the original amount you save (principal), then gain more money on both the principal and interest earned.
The idea that money can grow over time — and doesn’t just sit there doing nothing — can be a powerful motivator, for kids and adults alike.
3. The Siblings Babysitting Gig
When you’re 12 years old, the job market isn’t all that robust — so the opportunities to earn money for budding savers and spenders might seem limited. But that’s where you can get creative as a parent. For instance, 12-year-old Charlotte Baeumler wants a phone. And while she doesn’t have a job, Sarah talked to her about babysitting her 6-year-old sister, Jo-Jo.
“Giving your kids some measure of responsibility can teach them the concept of working for money. And when they work for cash — or for something they want — there is more weight and significance attached to the item purchased,” Sarah explains.
While you can begin teaching kids about money at virtually any age, it’s important to tailor the message to your child’s personality and level of understanding.
Whatever approach you choose, simply starting the conversation with your kids can go a long way toward making money an approachable, comfortable topic in your home. Plus, it can help establish smart habits early in life, which can lead to more savings success in the future.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.