Kids and Money: Starting on the Right Foot

Clients whose teenagers or young adults are beginning summer jobs or starting post-graduation careers need to teach them about money and how to make wise financial decisions. As these young adults begin getting a taste for earning money, their parents want to provide guidance to get them off on the right foot and to teach them about achieving their lifetime goals. Here are some time-proven strategies:

Goals: Help children dream and to establish goals for themselves.

• Expose them to various opportunities and options that will encourage them to work towards their desired goals. This could include vacations, a special camp, a new bicycle, trips to Europe, saving for university, saving for an instrument or for special lessons, saving to make a down payment on their first house or condo, or retiring early.

• Help them to write down goals and quantify them to see how much is needed to save over a set time period.

Financial Habits: Help set up money-saving habits to assist in achieving their goals.

• Teach them the importance of saving regularly.
• Establish a weekly or monthly budget so they know how much to save and how much they can spend.
• Set up three savings accounts: a chequing account for day-to-day purchases; a savings account for short to mid-term savings such as school tuition or for a new computer, and a longer-term investment account (such as a diversified balanced mutual fund) for long term, growth-oriented savings.
• File annual income taxes to generate retirement savings contribution room that can be carried forward to a time they are working full-time at a higher tax bracket and can take advantage of the tax deduction.
• Talk to kids about credit cards, the interest charges associated with these cards if the balance is not paid off in full each month, and having the cash available to pay off balances each month.

Monitor Results: Help them monitor progress

• Encourage them to keep a ledger or record book of their monthly savings and withdrawals.
• On an annual or semi-annual basis, help them to track their net worth so they know how much they have (assets) versus how much they owe (liabilities).

I hear regularly from many adult clients who wish they had known these strategies and followed this advice earlier in their careers. If they had begun saving earlier in their lives, they could have taken advantage of compound growth of savings over a longer time period. At a time, where there are record low consumer savings rates and higher levels of consumer debt, let’s hope that the young adults in our lives can learn from our experience.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.