Derek, when should I start talking to my kids about investing and money?
As any parent would, I want the best for my children and I’m often thinking about their future. As a citizen of Red Deer, I’m also aware of how young our city is — I’m never surprised at the number of children I see in our growing community.
With the expanding number of new families in Red Deer and surrounding area, I’m often approached with questions about planning for children’s future education. While that’s important, I think it’s also important to begin working with your children to help them understand money.
As a parent of two young boys, I also understand how busy life is. I know my wife and I always seem to be organizing the next birthday party, or making sure their backpack is ready for school, or toting them around the city for sports, or whatever else my boys are involved in. So while educating my kids on money and investing is important to me, I also understand that finding the time to help them with these concepts is challenging as well.
To be clear, I do not sit my boys down and have them study investment charts or get them to read the business section in the newspaper — the boys have no interest in this and frankly, we don’t have the time to explain it to them anyway.
What I suggest is finding ways to incorporate discussions about money into their everyday lives, and it can start whenever you think they are ready.
For my boys, at a very young age they each were given a piggy bank. While using porcelain porcine isn’t a ground-breaking concept we were able to find a piggy bank online that had four different slots, instead of just one. The four slots are labelled as Spend, Save, Invest and Donate.
So now, each time the kids get money from grandma and grandpa (or even stumble on a penny on the ground), they get to make a choice of how they want that money to be put to use. I explain to them the concept of each of the slots as such.
Money placed in the Spend category can be used for smaller items that the kids are hoping for (a small toy or candy for example). They are taught that this money is gone quickly and doesn’t come back.
Money in the Save category must have a specific and reachable goal.
For one of my boys, this was to buy a new video game.
He understood what the cost of the game was, he understood that he didn’t have enough for it today, and he and I made a deal that through various chores around the house he could earn it slowly.
In short, the Save category is used to teach them that luxuries (or video games in this instance) must be worked for and earned.
The Donate category is explained to my boys as a way to give money to other kids who may not be able to have toys or even new clothes. This generates a very sympathetic response from my kids and they often put money in Donate.
Finally, Invest is simply explained that this money goes to dad’s work where he will make it worth even more and they can have it back when they are much older. Both the kids think that is a neat idea, though their understanding of how it works is very limited.
The lessons from this piggy bank are valuable, but obviously targeted to a young audience.
That said, I believe it is imperative that we ensure our children have a strong understanding of how money works. This is not a discussion about greed; instead it is to lay the foundation for creating work ethic and removing entitlement.
I don’t think there is a perfect age when you need to start teaching your kids about money. It does not need to be complicated, and it does not need to involve charts and the business news.
Rather, use your own life experiences and frame it in a way that is relatable to your kids at their age. My suggestion is simply to find a way to start teaching.
Derek Fuchs is a wealth adviser with ScotiaMcLeod in Red Deer, and a certified financial planner, financial management adviser and a fellow of the Canadian Securities Institute. He can be contacted at email@example.com.