Teaching your kids about financial literacy

Allowance and earning income

• Using a structured approach in introducing an allowance can help your child develop an understanding of the value associated with money and how money is earned. As a starting point, consider establishing regular chores to encourage responsibility, and determine a set amount and timing of allowance you’ll provide, by age or by tasks.
• To further encourage the learning, some kids may do well with a “container approach.” With this method, they would have one jar for saving, one for spending and one for sharing (charitable giving). Help your child decide how they will split their allowance (or gifts) among the containers. For younger children especially, having tangible items such as containers and bills or coins can be helpful as a building block for visualizing and understanding financial concepts. Some kids may also want to draw pictures or write notes about the items they associate with saving, spending and sharing, which can be a creative way to start conversations about financial goal setting as well.

Budgeting and saving

• If your child doesn’t have one already, talk to them about setting up a basic personal savings account, possibly with debit card accessibility as appropriate by age. An account that caters to children can be a helpful educational tool to learn about everyday banking, to better conceptualize what savings are, and to understand how savings can build over time.
• Consider a “savings matching plan” where you contribute to your child’s savings as a way to encourage and support their positive financial behaviour.
• Introduce the concept of a budget and how it works. For example, encourage your child to choose an item they want to work towards purchasing to highlight the importance of setting financial goals. Then, help them develop a basic plan to attain that goal. Your plan may include weekly savings needed, extra income opportunities such as chores and a timeline.

Giving and philanthropy

• To help your child develop a charitable mindset, consider starting with a discussion around causes that are important to them or areas they are interested in (e.g. animals, community-based sports, the environment). This type of conversation may present an opportunity to then help your child research and choose a charity or cause they’re passionate about and want to support, through a donation or other charitable means.
• Whether it’s through their allowance, monetary gifts they receive for their birthdays or holidays, or creative ideas they have for earning money on their own, for example, encourage them to set aside an amount to donate to a charitable cause or organization. An important part of money smarts includes giving back and making a difference for those in need.

Broadening financial learning: Focus areas for teenagers

Among teenagers, there may often be a tendency to focus primarily on the short-term when it comes to financial decision-making. At this stage, expanding financial discussions and providing more exposure to a higher level of financial concepts, including more advanced saving and budgeting, as well as basic credit and investing, will offer valuable learning opportunities.

Key concepts

• For those in their early teenage years, setting savings goals and identifying the opportunity cost of purchasing and impulse-buying.
• For those in their later teens, planning for post-secondary education costs and potentially greater financial independence, budgeting, and starting to invest savings.

Saving and investing

• Revisit their personal bank account and consider adding debit card accessibility and online banking access. Depending on individual circumstances and financial behaviour, you may also want to talk to your teenager about increasing their debit card limit and the financial responsibility that comes with that adjustment.
• While the laws regarding working ages vary slightly among the different provinces and territories, most teens are able to start working between ages 14 and 16. Once your teen has a part-time job, review the “Save, Spend, Share” concept, and help them decide how much of their paycheque to allocate and automatically set aside for savings, spending, and charitable giving.
• Consider introducing an educational or practice investment portfolio and work with your teen to research, select and monitor holdings.

Borrowing and spending

• For some parents and guardians, the thought of giving teenagers the responsibility of a credit card can be unnerving. However, discussing and helping them understand the basics of how credit works is an important part of preparing them for future financial independence after high school. Discuss the use of borrowed money and interest, and the importance of using credit wisely.
• A good introduction may be to give your teenager a joint credit card with a small limit. Reinforce the importance of spending money only on items that they can afford to buy, and make a point to regularly review and talk about spending behaviour.

Budgeting

• During these years, transition the responsibility to your teenager that any special items should be paid for by cash flow generated through their savings, allowance or part-time job income.
• Whether monthly or quarterly, establish a routine for reviewing cell phone statements and other spending expenses with them. This can help encourage discussions around needs and wants as it relates to expenses and budgeting their savings accordingly.

Boosting financial confidence: Important topics for ages 18 to 23

For teens who are exiting high school, starting post-secondary education or entering the workforce, this stage of life marks a significant transition where late teens and young adults typically take on greater financial and personal independence. Throughout these years, more advanced financial learning and developing money management skills serves a number of important short-term and long-term purposes.

Key concepts

• Understanding different investment options.
• Identifying and saving for financial goals and creating an independent lifestyle.
• Reviewing credit options and ratings.

Saving and investing

• Assist with opening an investment account to help teach them about income, growth, liquidity and tax minimization. As age-appropriate, establish a routine for reviewing investment performance with them and your RBC advisor, or having them set up a meeting directly with your advisor. This may also provide an opportunity for further learning about short-term and long-term investments, types of asset classes and investment vehicles, risk types and methods of diversification.
• Talk to them about directing financial gifts to appropriate investments, and discuss the benefits of setting up an automated monthly savings contribution.

Borrowing and spending

• Enhance their existing understanding of these concepts and responsibility by slowly increasing their credit card limit, as age or circumstances are appropriate.
• Remove the joint name on their credit card, and as appropriate, review spending and credit history together on an annual basis.
• Encourage them to establish a monthly automatic payment from their income to cover their expenses.

Budgeting

• Together with them, establish a complete post-secondary education budget, so they can gain a clear sense of costs, as well as needs and wants as it relates to their expenses.
• Walk through how to put together and maintain a detailed budget. To help, consider using the RBC Student Budget Calculator.
• An important part in creating a budget is thinking about and recording short-term and long-term financial goals (e.g. a new phone, vehicle, house, further education). Encourage discussions about their goals and how a budget plan serves as an effective tool for putting concrete plans in place. Depending on circumstances, you may want to consider having them work with your advisor to do a wealth projection or financial plan.
• Further to a “cash in vs. cash out” formula, discuss how a budget should be structured to effectively prioritize savings.