Whether day-to-day or more large-scale in nature, financial decisions exist in so many aspects of our lives. Given the wide range of decisions adults and families make as it relates to their finances, money management skills and knowledge can play an important role in identifying, planning for and reaching financial goals. While research tends to show that most Canadians don’t turn a focus to financial education until their 20s,¹ starting this learning while your kids are younger can have a number of positive impacts. An earlier start to financial education will help younger individuals develop healthy money habits early on and can set the stage for greater financial confidence and informed decision-making as they transition into and throughout their adult lives.
Here are some key concepts to focus on as part of building financial management skills, by specific age groups.
Financial literacy basics: Ideas for kids ages 6 to 12
When it comes to financial learning, there’s a common saying that it’s never too early or too late to start. At the early end of that time frame, some research suggests that certain money habits, such as understanding value, what it means to earn money and planning ahead, can be established in children by age 7.² With that in mind, there may be a number of long-lasting benefits in providing learning opportunities when your kids are young.
- Making the most of an allowance or earnings, and introducing the concept of “Spend, Save, Share”.
- Budgeting and saving strategies to help your child purchase a special item (e.g. bicycle or video game).
- Introducing the concept of giving back and philanthropy, and encouraging discussions about giving to charitable causes or organizations they may be interested in.
Mydoh – The Smart Card for kids
Created with the support of Royal Bank of Canada, Mydoh is a Smart Card that comes with a money management app for parents and kids, developed through RBC Ventures.
Mydoh provides the opportunity for pre-teens and teens to practice and improve how they manage money in a practical, hands-on way, at the same time ensuring the experience takes place in a safe, controlled environment that parents/guardians manage and guide.
How does it work? Parents can download the app and set up accounts for themselves and their children. Funds can be added securely to their Mydoh Wallet. From there, parents can set a weekly allowance and establish one-off or recurring tasks for kids, and provide guidance for their earning and spending decisions in real time on the app.
With Mydoh, parental guidance and individual parenting approaches are a key focus, so there is flexibility in how involved you want to be. Key capabilities include:
- Seeing your kids’ spending activity and reacting to their decisions right in the app.
- Having oversight and control over the amount of money you extend to kids.
- Setting up a weekly allowance.
- Assigning tasks and chores to help kids learn the value of earning money.
- Ability to pause your kids’ card if needed.
Find out more about Mydoh.
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.
To find out more about getting a head-start with savings and the benefits of starting early, please read the Perspectives article “It’s about time”.
For more tips, resources and educational tools, check out the Government of Canada’s Financial Literacy Database or the Financial Consumer Agency of Canada’s Teaching Children about Money.
- 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.
- 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.
- 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.
- 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.
The RBC Wealth Management Financial Literacy program
RBC Wealth Management recognizes the importance of financial literacy and building financial management skills at every stage of life.
Designed for those age 16 or over, the RBC Wealth Management Financial Literacy program provides an advisor-led, comprehensive approach to developing financial knowledge and practical skills. To find out more, contact your RBC advisor.
- RBC Wealth Management 2017 Wealth Transfer Report. /en-ca/wealth-transfer.
- Dr. David Whitebread and Dr. Sue Bingham. University of Cambridge. Habit formation and learning in young children. Published 2013. Accessed March 2021. https://mascdn.azureedge.net/cms/mas-habit-formation-and-learning-in-young-children-executive-summary.pdf (Open in new window).
This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliates. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licenced representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc. and the private client division of RBC Global Asset Management Inc., Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licenced as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason.
® / TM Trademark(s) of Royal Bank of Canada. RBC Wealth Management is a registered trademark of Royal Bank of Canada. Used under licence. © 2018 Royal Bank of Canada. All rights reserved. Printed in Canada