Appreciate what things really cost
Who is as happy as I am to have their taxes done? Big collective sigh of relief until next April!
While we are slogging through our tax prep is one of many opportunities to discuss money issues with our kids. When my son saw me with my receipts spread over the table, he asked me how often we pay tax. I answered and then asked him if he had any idea how much it costs to operate a car for a year (the line item I was working on). Not surprisingly, he was way off! Then we discussed how our family could reduce this amount, such as take the TTC more often, or ride our bikes. Knowing about transportation costs is especially relevant to him as he is grateful we are able to drive to his hockey games and practices. He is glad to have Mom’s Taxi available to him! Lugging around a hockey bag on the TTC would be quite the challenge! It is also important for him to be aware there is price to pay – and quite a large one - for the convenience of having a car.
As we go about our daily lives, we can take a moment to explain some of the money decisions we make. Involving the kids while we are shopping for a new item, saving for a vacation, or putting money aside for taxes, helps them start to develop a sense of money management. It helps them to appreciate what things really cost.
Sometimes knowing how to teach money management concepts to our kids can be as overwhelming as taxes! The good news is there are lots of resources available to help. This April, the Bank of Montreal and CFEE – Canadian Foundation for Economic Education held their Talk to Your Kids About Money Day on April 16th. Check out their website – talkwithourkidsaboutmoney.com for some great resources to get the conversation started. And be glad that tax season is over!
Saving – the Long and the Short of it
It is hard to get some children to save when there is so much tugging at their wallets. (Or they tug at yours!) But saving up for something is a wonderful experience. It makes us appreciate the item more. We have thought about it, waited for it and finally, after weeks of earning and saving, we make the purchase.
Teaching children delayed gratification is an important lesson in this "get it now" world. Remember when we used to have to go to the library to research our class project? We had to find the time to get a parent to take us to the library, ask the librarian for assistance, and search through (and actually read) the book to find the information we required. Now, we simply type in our request and the answers appear. Presto.
Purchasing has become instantaneous as well. Online purchases, swiping our debit and credit cards, and our "I deserve it now" attitude has created a consumer-driven society that is over-spent and in debt.
What if we waited? What if we asked the question, do I really NEED it? If we decide not to buy something, we will have more money later to spend on other things that we need, or want. Or, we will have money to SAVE for the long-term. For things we won’t tire of or grow out of, like an education or an investment.
I don't expect young children to get excited about saving for the long term. Most children can only grasp short-term savings such as saving up for a new toy or video game – something that they can get in a few weeks or months. A parent can support this short term saving plan with a budget or visual graph to chart the savings goal. However, older children in their early tweens and teens CAN start to appreciate long-term savings, especially if they have aspirations to buy a car or go to post-secondary school.
It all starts with a conversation about future goals and the cost associated with obtaining these goals. Then there is the saving component, for which there are some visual tools to help young people see the advantage of youth. Seeing compound interest work over time can be amazing. It is one of the "regrets" we hear from adults…if only I knew the value of saving at a younger age. The Investor Education Fund has an online calculator that can illustrate how compound interest works over time. They also have one that helps to calculate how much is needed for University.
COMPOUND INTEREST CALCULATOR
www.getsmarteraboutmoney.ca/tools-and-calculators/compound-interest-calculator
UNIVERSITY EDUCATION CALCULATOR
www.getsmarteraboutmoney.ca/university-cost-and-debt-calculator
Take some time to encourage young and older children to save. (Maybe even save some yourself, as your actions do speak louder than words!) Opening two savings accounts – one for short term and the other for long term saving is one of the ways to encourage long term savings. Just think how wonderful it would be if you AND your child helped to save long term for college or university! What a gift it would be to graduate debt-free!
Piggy Bank or Savings Account?
When a child is very young, it is exciting for them to shake their piggy bank and hear the coins rattling around inside. Or if you have a clear container, a child can see the level of coins rise as they add more and more to the jar. There is a sense of pride associated with saving and until they realize the potential for spending, many children are quite satisfied with the act itself. I wish this never changed!
For older children, from as early as 7 or 8 years old, saving accounts can be exciting too, however it takes a bit more effort on the part of the parent. Most of us set up bank accounts for our children at a very young age, but few include them in the activity. It can be an educational outing to visit the bank, prepare some questions and talk to the bank associate about what happens when you open up an account. It is also worth your while to shop around and compare options, as some youth accounts offer bonuses for setting up a new account such as a one-time $25.00 initial deposit.
Most youth accounts still use passbooks, which can be explained to your child and used as an incentive to watch their money grow – not only as they put more in, but with the added interest they receive. (We explain interest as a little bonus that the bank gives you for keeping your money there. For older children, you can talk about how the bank uses this money to provide other clients with a loan for things like a car or house.)
So although the interest earned from a savings account is not very high right now, at least the money is safe and growing. Compared to a piggy bank, where money can be too tempting to spend, and no interest is accrued, a bank account is a pretty good deal and saving is a very important habit for your children to develop. A great video entitled “Which is Better – Piggy Bank or Saving Account” can be viewed at citi.com.
And finally, many students ask us what happens if someone robs the bank, what will happen to their money? You can assure them that the government will guarantee that their money is safe, up to $100,000. The Canada Deposit Insurance Company has a website that you can explore to learn more about how this works: www.cdic.ca
Watch for our next article on some other great ways to get your kids to save!
Happy Summer!
Teaching Kids About Debit and Credit Cards
Children see us use our "magical cards" most every day, when we buy gas, clothes and food. Debit or credit? What is the difference? They both seem to do the same thing. It can be very confusing: we want it to make sense.
A student asked, "How do you put the money on your credit card?" Some kids think of credit cards as gift cards, which children might receive on their birthday or holidays. There is a set amount on the card and each purchase is deducted from the total until the card is ‘empty’. We don’t want 18 year olds receiving a credit card with a $1,000 limit and thinking it works like a gift card!
We use this tool to show students how debit cards work: www.oclf.org. It provides opportunity for discussion such as, ‘What does the receipt show you?’ (Answer: The amount that will be deducted from your bank account). Demonstrate that it happens right away, no delay.
It is also a good time to answer, "What happens if I don't have enough money in my bank account?" (Answer: It is declined. The purchase will not be able to happen.)
To explain credit cards we emphasize that it is NOT your money; it is a loan from the credit card company or bank. You purchase the item, you borrow money to pay the store, but you don’t pay for the item right away. Instead, you get a statement at the end of the month that states how much you owe and when you must pay it back.
And, if you have not kept track of your purchases – "charged more than you can handle" – you will have to pay interest. This video explains it well for kids in the 8-10 year old range: www.youtube.com. For older children try the Investor Education Fund Video, "Get it on Credit": tinyurl.com.
Online videos, tools and games are engaging tools to get the conversation started. You can also bring the message home by showing your kids your bank and credit card statements. Show them that the government has recently required all credit cards statements to reveal the amount of time it will take you to pay off your credit card if you only pay the minimum payment, and how much in interest you will end up paying on top of the cost of the item. Truly shocking! Check it out yourself!
The Value of Money
We teach our children the value of hard work, honesty, kindness and so much more. How can we teach them the value of a dollar?
Our children ask us to buy them things all the time. A new hockey stick. A donut. An iPod. It is important for them to understand their cost.
The value of these items will sink in if they are encouraged to purchase them with money they have earned. If we buy things for our kids all the time, they may be thankful, but they may not understand how hard we work to pay for it all. Once children use their own money they often become quite frugal!
One way is to help children learn the value of money is to equate an amount of work with the price of an item. Adults evaluate the worth of an item many times a day. $30 for that?!?! Am I willing to pay for dinner out or should we eat at home? Are these new boots worth the five hours I will have to work to pay for them?
We can help our children to understand the cost of items and the value of a dollar by getting them to do piece work jobs or those that pay by the hour.
If it takes them an hour to earn $5 by washing the car, they may think twice about buying that iPod app.
If kids have a lemonade stand, and sell 20 cups of 50 cent lemonade to earn $10, that new hat may all of a sudden seem too expensive.
When they earn 5¢ for each weed they pull or $7 for each lawn they rake, the concept of the value of money starts to hit home. Your children will thank you for taking the time to do this when they are older. (Really!)
And, hey, we will thank them too. I will gladly pay almost any price to not have to weed my garden! ;)