Adults know they need to save money for that proverbial “rainy day,” but how do you teach a child that saving money is a good idea? Whether they are saving up for a new toy or a long-term goal, it’s important to teach them the skills needed to achieve that goal.

Needs vs. Wants

A good first step is to teach your child the difference between needs and wants, because otherwise it is the foundation of good money skills.

Needs: Explain to your child that your income must first pay for necessities such as rent/mortgage, heat, electricity, clothing, and food.

Wants: Once the necessities are covered, what remains are wants. These include things like family vacations or eating out, and can only be paid for if there is enough money left over after paying for your family’s needs.

Knowing the difference between needs and wants will help your child:

  1. that they must learn how to live within their means
  2. that they cannot spend all of their money only on the things they want
  3. the importance of saving for the things they want

Create a three-jar system, each “Saving,” “Spending,” or “Sharing.” Every time your child receives money, whether from chores or from a birthday, have him or her put an equal portion in each jar. The spending jar is for small purchases (i.e.: candy or stickers). The saving jar is for larger purchases. Money in the sharing jar can go to someone who needs it or to a charity.

Age-appropriate financial knowledge, skills and behaviours

“As more financial decisions are faced by Canadians at younger and younger ages, grasping financial principles early in life is crucial to being better prepared to participate in the Canadian and global economy and avoiding pitfalls in financial decision making.”

Report of Canada’s Task Force on Financial Literacy (December 2010 Report)

The Financial Consumer Agency of Canada (Government of Canada) has tips on helping teach children about saving money, building basic money skills for children, and making smart spending decisions. They’ve broken down the concepts of financial knowledge, skills and behaviours according to age group.

Ages 4 to 8:

  • understand that people have a limited amount of money to spend
  • use money to buy basic goods and services for simple transactions
  • divide allowances or other money received among the financial goals of saving, spending and sharing
  • understand that there are choices when it comes to money, and that money spent on one thing means that there is less money available for something else.

Ages 9 to 14:

  • recognize the difference between needs and wants
  • understand the importance of saving a portion (for example, 10 percent) of all money they receive and the value of an emergency fund
  • create a savings plan for short-term and long-term financial goals
  • identify regular financial commitments families have and know that families use household income to meet those commitments
  • create a simple budget for an activity or event.

Ages 15 to 18:

  • understand the pros and cons of different payment options
    such as cash, debit cards and credit cards
  • understand different kinds of basic investments (GICs, stocks, bonds and mutual funds)
  • understand the time-value of money (for example, past, present and future worth of money) and opportunity costs
  • understand the concept of “living within your means” and why it is important.

Lead by Example

Children learn from observation, so setting a good example will go a long way to building money-saving habits. As your child gets older, you can include her more and more in financial decisions, using practical examples of how to save money.

Let’s say you’re grocery shopping.

As you go around the store, explain your shopping choices, like why you choose the generic brand of juice as opposed to the brand-name one, why buying staples in large quantities save money. While at the store, give your child a small amount of money, let’s say $2, to make a purchase within specific parameters. This will give her experience making choices with money.

You can also talk aloud about whether what you’re looking at is a need or a want. “Do we really need to buy this today, or can you wait until next week?” or “Can I borrow this?” or “Would it cost less at the discount store?”

How 4 Pillars Can Help

These are just a few ways to teach you and your children financial responsibility, and 4 Pillars Victoria can help you learn other ways to teach your child how to save money for the future. We can also help turn your family finances around from a cash negative position to a cash positive position, call us to see how you can be debt free and have more money at the end of the month.