How to Turn Monetary Gifts into Teachable Moments
By, Carla Hindman, Director of Financial Education, Visa Canada
When your kids or teenagers receive money as gifts, they're faced with the challenge of what to do with their newfound cash. While they should be allowed to spend some of it, as a parent you can use these opportunities to teach valuable personal finance lessons.
Here are some ideas to start with – although you can alter the message or subject-matter to match your child's level of knowledge and experience with financial matters.
Create money goals together. Planning how to save or spend monetary gifts is a valuable skill at any age. You can start by drawing three columns- spending, saving and giving- and have them set a few goals for each. Explain the difference and importance of long-and short-term goals, and the value of having an emergency fund (for kids this could be something like helping pay for an unexpected expense, such as a bike repair).
Set priorities and discuss the big picture. Have them add up all of the money they have received and divide it into each column. They will likely find that there isn't enough money to make a significant impact on all of their goals and they'll need to prioritize based on how important each goal is to them. Don't be afraid to share your own experiences. You could also have them calculate how expected income from allowance, working or upcoming holidays or birthdays could help them achieve their financial goals.
If your kids are just beginning to learn about money and its value, no fear! There are many games and apps available such as Peter Pig's Money Counter to help familiarize them with identifying, counting and sorting Canadian currency.
Decide where to store the savings. If they don't already have one, it might be a good time to open a bank account with your children. Discuss the different types of bank accounts available and how they work.
Are you starting to save for your kid's post-secondary education? Consider opening a Registered Education Savings Plan (RESP) and encourage your kids to also contribute a percentage of their earnings towards it. Make sure to explain to the benefits of having an RESP. With an RESP, you can watch the money grow tax-free until it's withdrawn for qualified educational expenses. As a bonus, the federal government will provide a grant of 20 per cent of the first $2500 in annual contributions made to an RESP to a maximum of $500 per year. (The lifetime Canada Educations Savings Grant limit for an RESP is $7,200).
Comparison shop before making a purchase. No doubt, children are going to want to spend some of the money right away. This offers an excellent opportunity to discuss the importance of comparison-shopping. Being able to figure out what best fits one's needs, wants and budget is an important skill at any age.
Dollars are still dollars. As money becomes increasingly digital and with online banking and ecommerce growing in popularity today's young people may soon be doing the majority of their transactions online. So helping them learn how to manage, save and spend an allowance and track purchases is more important than ever. Games that focus on real-life scenarios can help teach effective money management techniques at an early age. For example, Money Metropolis is a game that features a multi-dimensional world where players make real-life decisions that will affect whether their virtual bank account shrinks or grows.
Bottom line: You can't force behaviors, but you can use teachable moments to explain and practice valuable money management skills. With a little information and determination, kids and teens can gain the confidence needed to make positive and impactful financial decisions in the future.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.