Practical information to promote a better understanding of financial management in key age demographics.
Laying the groundwork for financial literacy among the younger generations is a front-and-centre concern for families and society as a whole. Not only is it valuable for helping youth develop a strong sense of effective financial management as they move forward in life, but it also helps families adequately and successfully prepare for and carry out the transfer of wealth from one generation to the next. From childhood through to early adulthood, it’s a combination of age-appropriate education, resources, and concepts that form the foundation of long-term skills and values.
Instilling financial value in tweens and early teens
Parents of children between the ages of 10 and 13 know very well that these years are filled with a number of changes and development. From a financial standpoint, youth at this stage have a growing ability to understand principles of saving and spending beyond just the basics, into longer-term goals. As such, three main areas parents should focus on are earning, saving, and responsible spending.
At this stage, it can be very motivating for kids to develop an entrepreneurial plan for an age-appropriate business. Encourage your children to come up with creative ideas for earning their own money as an introduction into the financial world and to help them attach a value to dollars earned. If you haven’t done so already, talk to your child about opening a personal bank account and help them follow through on researching an account that caters to children as a way to help them better conceptualize saving and everyday banking.
Exposing kids of this age to family wealth planning is another beneficial way to help them grasp the ideas of setting budgets and planning for financial goals. All forms, from shopping and paying bills to planning significant purchases and vacations, will broaden their knowledge of the components that go into overall financial management and provide insights into how to be a smart consumer and saver.
Another relevant area of focus during these years is introducing philanthropy and the notion that part of being money smart includes giving back to the community and those in need. An ideal starting point is helping your child research causes they are passionate about or local charities to support through their school or sports team.
Helping teenagers understand wealth planning and decision making
In a day and age that favours immediacy, the mentality of “I want what I want when I want it” is one that’s become common among teenagers. This tendency to think only in the short-term reinforces the value of providing youth in this age range with education about and exposure to a higher level of financial concepts, including budgeting, basic credit, and investing.
While laws regarding working age vary slightly among different provinces and territories, most teens are legally able to start working between 14 and 16 years old. Once your teenager secures a part-time job, review the “save, spend, share” concept, helping them decide how to allocate their paycheque and decide on amounts or percentages to automatically set aside for savings, personal spending, and charitable giving.
For some parents and guardians, the thought of teenagers being responsible enough to handle credit can be unsettling. However, engraining the basics of how credit works and using it responsibly is well-served to help teens prepare for the financial independence that will come after high school. The key is being proactive — assist in the research process about annual fees, spending limits, and interest fees, and ensure to focus on conversations about spending only what they can afford, making payments on time, and how credit ratings impact current and future financial health.
A broad and comprehensive resource to consider exploring is the RBC Better Student Life website. It provides a wealth of timely and relevant articles and information to help prepare youth for life after high school and assist post-secondary students.
Shifting into financial management as a young adult
Those in their early 20s are part of the Millennial generation that is quickly taking over as the largest percentage of the workforce. This age bracket also marks a significant transition where youth generally take on a new level of financial and personal independence. And given the fact that over the next 30 or 40 years in North America, $30 trillion in financial and non-financial assets is expected to pass to this generation,1 instilling strong financial literacy and money management skills among young adults holds an incredibly heightened level of importance.
From a practical perspective for post-secondary students and young adults new to the workforce, there is great value in learning how to put together and maintain a detailed budget. The RBC Student Budget Calculator may be a useful tool in this regard, walking users through step by step to capture all expenses and income. Grasping the concept of budgeting also works well as a stepping stone into building a better understanding of the importance of saving and investing as part of overall wealth planning to reach individual financial goals.
For youth in this “twenty-somethings” age bracket, it’s an important time to be thinking about and planning for life-changing events that come with the shift into adulthood. Whether it’s further education, marriage, a house, children, or aging parents/grandparents, these events need to be considered as young adults plan for wealth in the near future. Part of this planning includes being informed about the purposes and benefits of short- and long-term investment options as a means to take the right steps towards building a healthy financial future. A good starting point is an education around the differences between registered and non-registered accounts, as well as the purposes and benefits of each. For going beyond the basics, an RBC advisor is the best resource to provide detailed information about strategies such as growing investments in a tax-sheltered environment via RRSPs, the flexibility offered in TFSAs, or saving for shorter-term goals with stocks, bonds, mutual funds, or GICs.
Quick tips for raising a money-smart kid
An early introduction to the value of the dollar can go a long way in developing healthy financial habits.
- Establish an allowance. For younger kids, it functions as a key building block for financial understanding.
- Introduce the “container approach” — one for saving, one for spending, and one for sharing. Help your child decide how they will divide their money (allowance, gifts) among the containers.
- Consider a “savings matching” plan where you supplement your child’s savings as a way to encourage and support their positive financial behaviour.
- Have your child choose an item they want to work towards purchasing, and then help develop a basic plan to attain that goal, including weekly savings needed, extra income opportunities such as chores, and a timeline.
Regardless of age, there are a range of online programs, such as Practical Money Skills Canada, that provide valuable resources, educational tools, and information for parents, educators, and youth to help improve financial literacy.
1Accenture survey report summary. The “Greater” wealth transfer: Capitalizing on the intergenerational shift in wealth.
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