Canadian Finance Blog

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Why It’s Important To Teach Children About Savings Posted: 10 Sep 2011 02:00 AM PDT With the current economic climate turbulence (to say the least), people may be finding it harder than ever to save. If you're raising children, things can be even tighter – but you should make sure that you don't neglect to teach your children about savings, even if you're not doing it yourself. But at what age should you introduce your children to the concept of putting money aside for a rainy day and what are the best ways to go about it? There are a number of savings accounts out there, such as a TFSA (or cash ISA in the UK), but children are not eligible for it. The general consensus is that it is never too early to start introducing your children to the concept of money and saving, as long as it is done in an appropriate manner. Toddlers are unlikely to grasp the finer points of pension arrangements after all! However, even very small children can begin to learn about money with a simple cent jar at home and a basic explanation that Mommy and Daddy have to work hard to pay for things such as toys, food and the house. Once children are old enough to have an allowance, a well-used tip is for them to have three piggy banks – one for charitable donations, one for saving and one for spending. As long as some money is put in each piggy bank from their allowance each week, it doesn’t matter what the ratio is. The idea is that children establish saving habits from a young age and a pattern develops of putting money aside, even if it is only a small amount. Once the savings start to mount up, an account should be opened at the bank, any kind of savings vehicle is suitable, but a high interest account from banks like ING Direct or Ally might be best. When the statements arrive from the bank, the child can be shown how they are earning ‘free money’ just by putting their savings into their account. Children will often view their savings as getting bigger all on their own as quite an exciting event and will look forward to receiving their bank statements to see how much their money has grown by. By setting the basics of savings in place, children should become accustomed to putting money aside and continue this habit as they grow older, albeit with larger amounts. As children mature, it is important to continue to build on their financial know-how by involving them in household budgeting and explaining how to spend money wisely. One way to help teach teenagers about how to run a household is by allotting them a fictitious amount of cash and asking them to go online and put together the grocery shopping for the week. Whilst this will be bewildering at first, it is a fun activity for the youngster and will quickly teach them how to budget and look for bargains. As they grow through their later teenage years, explaining more complex financial terms such as APR and what to check for on credit cards, loans and savings accounts such as a TFSA or RRSP is very important to equip them for becoming financially independent. If you are unsure of how these products work yourself, many banks will be willing to help out if you book an appointment to see a personal advisor, especially if the teenager has held a savings account there for a number of years. The most important thing is that children get used to learning about the value of money from a young age and by the time they are ready to move out of home, they are used to managing a range of financial transactions themselves. Related Posts: What Do Garage Sales Teach Us About Money? TFSA – Tax Free Savings Account What Should You Do With Your Tax Free Savings Account? Why It's Important To Teach Children About Savings originally appeared on Canadian Finance Blog on September 10, 2011.

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