When you understand that financial success can contribute to comfort in life, it’s only natural to want to help your child in this way. However, setting a child up for financial success isn’t about giving them money. It’s about showing them the value of money and how to be smart with it so it goes further. Even if you don’t consider yourself a financial guru, you can provide your child with a strong foundation for economic success by doing some of the following things:
Teach the Mindset First
Even before you tell your child the intricacies of savings options like RESP savings, which are long-term savings plans to save for education after secondary school, you should teach them the money mindset first. Children can absorb information about money long before they understand numbers.
Talk about saving rather than spending, and discuss choices. For example, when visiting a store, you might tell your child that you can’t buy a certain small thing because you’re saving to buy a big thing. Avoid framing money as something to stress about, and introduce it as something that can provide choices and freedom, rather than just possessions.
Introduce the ‘3-Bucket’ System
The three-bucket system is a common money management strategy that divides your paycheck into three categories: essentials, savings, and long-term savings or investments. While it’s a very ‘grown-up’ strategy, you can teach it to your child as soon as they start earning pocket money.
For example, you can tell them that they can spend a portion of their pocket money on fun stuff now, save a portion for their short-term goals, such as a bigger purchase, and set aside the remaining portion for long-term growth. This explanation can help kids learn to both enjoy money and grow it.
Open Accounts Early
You don’t have to wait until your child earns their own money before opening a bank account for them. In fact, you can start a savings account and an RESP education savings plan for them as soon as they’re born. Later, you can also open and interact with an investment account. The earlier you open and contribute to accounts, the more money they can have to secure their financial futures.
Teach the Investing Basics
As your child turns into a teenager and starts showing an interest in earning and growing their own money, consider teaching them about investing. You don’t have to be an expert, and you can keep discussions simple to hold their interest.
For example, you might like to start by explaining what stocks are and how, if you buy them, they can appreciate in value, and you can sell them for a profit later. You can also explain how compounding works and the benefits of investing versus saving. Depending on how interested your teen is, you can even track some of the leading stocks, such as tech giants Nvidia, Apple, Amazon, and Meta.
Encourage Earning
It’s often hard to teach children the value of money when they can’t yet get a paying job, and they are given the things they want and need. However, even though children are too young to enter the workforce, they can still earn money by doing household tasks.
Beyond basic chores, you can put them to work on age-appropriate tasks like mowing lawns, washing windows, selling things online with your help, and babysitting. Receiving money can mean more because they’ve earned it, and they can also learn confidence and a work ethic.
Help Them Set Goals
Earning money for the sake of earning money can be boring for kids. They don’t always understand the point of it. As a result, there can be great value in helping them set goals for the money they are given and for what they earn.
For example, if they would like a new bike, you can let them know how much one of them costs and help them set the goal of earning a certain amount of money to purchase it. Goals make the delayed gratification feel worth it.
Avoid Common Money Mistakes
When you’re new to talking about finances with your kids, it’s easy to make mistakes. However, here are some of the most common ones to avoid so your child has a better chance of achieving financial success:
- Not talking about money
- Giving money without teaching financial responsibility
- Shielding them from financial responsibility
You don’t need a great deal of money to teach your child to be smart with it and use it wisely. By having open financial discussions, opening savings accounts early, and helping them set money-related goals, they may find it easier to understand its value and make informed financial choices.