Financial skills are critical to a successful life, from when we first live on our own to the retirement years. Unfortunately, many young Canadians are not taught simple financial skills during their adolescent years. We need to change that.
When it comes to financial literacy, Canadians aren’t doing so hot.
Recent studies show that “55% of Canadians have unsuitable numeracy skills,” while “4 in 10 Canadians report that money is a daily concern, and a third of low-income Canadians report worrying about money almost constantly.” Moreover, “Less than half of Canadians (46%) have a budget.”
Tragically, many people with poor finances make enough money to live perfectly prosperous lives, but are simply unable to manage their accounts and make good spending decisions. With more effective financial skills, young Canadians could avoid these conditions.
As with other skills – how we eat, how we work, how we relate to people – a lot of these patterns are set early in life. As adults, we can help positively influence future generations by instilling basic financial literacy at an early age.
Here are six tips you can use to help build a solid financial foundation for the young person in your life.
1. Set goals and reinforce spending discipline
Every teen has their eye on something they wish to purchase. You can use this fact to encourage more strategic spending, a key component of financial literacy.
Have your teen research, make decisions, and set financial goals to save for items they want to buy. This will teach them to make informed decisions, avoid impulse purchases, and value what they have worked hard for.
If the item they want is something you feel is important, like a new instrument, car or letterman jacket, tell them you’ll pay half. This will incentivize them to save while making it clear that the old adage is true: “Nothing in life is free.”
2. Understand how the media impacts spending
Teens are constantly bombarded with ads that prey on their insecurities and desires. Teaching kids to recognize when they are being targeted with ads, and teaching them to make smart purchasing decisions, will help reduce unnecessary spending.
This is where their financial goals come in to play. Help them by teaching skills such as:
• Pausing and carefully considering purchases
• Researching the product and how it’s made
• Price shopping for the best value
• Paying attention to reviews of both the product and the vendor
This is a good opportunity to cover concepts such as needs versus wants, as well as the long-term value of purchases – both key elements in financial literacy. Ask question such as:
• Will the product you’ve chosen last as long as you’re going to want to use it?
• Will this go out of style soon?
• Can this be repaired if needed?
• If not, is it really a good use of your money?
Children don’t naturally have these thoughts. With adult coaching, though, they can learn to ask them on their own.
3. Open a savings account
Saving is critical to managing expenses, building wealth and to ultimately becoming self-reliant. From retirement accounts to mortgages, various strategies exist for banking your money long-term.
Again, though, these aren’t natural skills. They are a stepping stone in financial literacy that must be taught. Open a savings account for your teen. This will be their foundation to start saving and a place to deposit their income once they start working.
4. Establish a source of income
Encourage your teen to get a part time job. This will help develop a relationship between time and money, something children don’t see when everything is provided to them.
In addition, they will gain valuable work experience and be provided with a solid foundation of money management and budgeting. It’s much better for a person’s financial literacy and general self-efficacy to learn to work young. You can help them succeed at a job by:
• Teaching them how to search for open positions and fill out applications
• Making work accessible to them, like paying for half of a car if they need one to get there
• Talking through their experiences, discussing the difference between work that’s hard and work that truly isn’t worth doing
• Helping them with math such as how many hours equate to the amount of money they want to spend on a certain item
5. Pay a bill or two
In Canada, only individuals over the age of 18 are eligible to enter a legal contract. However, you can still teach your teen to pay bills on time by having them reimburse you each month for things like their cellphone.
Once they turn 18, you are able to transfer the contract to them, a major step in learning financial literacy. This will teach them to pay their bills on time and help them build credit worthiness, once the contract is in their name. Slowly, as their credit rises, they will feel a sense of pride in that number and learn to prioritize it on their own.
6. File a tax return
An invaluable lesson that will set your kids up for success later in life is learning how to file their own income tax return. There are several online tax tools to make the process easier when claiming income, tuition, or qualifying for federal or provincial credits.
If you feel comfortable sharing with them, you could show them how you complete your own tax return as well. By starting early, your teens will understand the flow of money and the importance of keeping their bills and receipts organized. These are irreplaceable tools for future financial literacy.
Model Great Finances with People Corporation
It’s never too early for financial literacy. Helping children learn the value of money by earning it at home, counting money, and paying for more of their own belongings are all smart ways to start. For more tips and tools to help better manage money and finances please visit the government of Canada’s Financial Consumer Agency of Canada site by clicking here.
Another smart way to help young Canadians build a brighter future? To ensure you’re providing their parents with the tools necessary to succeed in life. That means good benefits that put people first, which is what we specialize in here at People Corporation.
Our mission in life is to help as many folks as possible find the financial security they’re looking for. With more than 1,500 professionals located in 21 cities across the country, we positively impact the lives of more than 1.6M Canadians … and we’d love to help the people that matter to you next.
Get in touch with us to learn more about our group and individual benefits, retirement plans, human resources plans and more. If you value basic financial skills to the young people in your life, then get started by first promoting better real-life finances for the people who give you their service.
Originally written by Salina Shariff, Senior Director, Retirement Solutions & Financial Wellness, People Corporation.