Alessandro Sax

As individuals we all hold our own preconceptions of “money,” most of which were formed through our childhood and adolescent experiences. In today’s world most toddlers are able to navigate an iPhone long before being able to count a jar of loose change. In an age where the world is literally at your fingertips and shopping is as easy as the click of a button. How do we educate our children on the value of money?

Start young. As with most skills, the earlier in life you are taught the more it becomes second nature. A child’s foundation of money begins to develop as early as three years old, with studies suggesting that kids’ money habits are already formed by age seven. Knowing this, parents should take advantage of the everyday teachable money moments.

The earliest exposure to savings traditionally includes a piggy bank with kids rummaging under couch cushions for loose change. Instead of leaving savings up to luck, take an opportunity to implement a small regularly scheduled allowance. It will go a long way in keeping kids engaged in learning about money. Implementing which chores, duties or behavior parents require in exchange for allowance is a choice for every family to decide on. The concept of saving becomes even more powerful when linked to a short, medium or long term financial goal. Have your child set a goal, something that motivates them and is achievable in a reasonable time frame. Setting up your child for success is the main aspect of the exercise, leaving them feeling empowered and not frustrated is the desired outcome. For those larger goals encouraging your child with either a matching program or offering simple interest is a fantastic way to demonstrate the power of compounding. These exercises although simplistic should not be overlooked as goal setting and delayed gratification translate into successful spending habits and budgeting skills later in life.

Moving from a piggy bank to your first bank account is an important step in creating awareness and a comfort level surrounding money. Unfortunately, our schools still do not teach children about money, which is why many young adults find banking intimidating. Early exposure to the banking system can help alleviate these emotions down the road. Most large banks offer little to no fee banking services to those under the age of eighteen which helps to encourage savings at a young age. Exposing kids to financial transactions and even online banking early will give them the confidence later in life to, say, apply for a student loan or open up their first investment account.

Educating children of the concept of money is one thing, but creating an appreciation for the value of it is an issue with even greater complexity. There is no better lesson or self-satisfaction for a young adult than earning money through a part-time or summer position. The introduction of responsibility, independence and disposable income are key factors when it comes to future financial success. This also presents another perfect opportunity to educate on the power of investing and compound interest. Illustrate how small amounts of money invested over time can easily grow to substantial sums.

Including charitable giving or sharing throughout a child’s life can go a long way in understanding the true value of money. For young children “sharing” can be as simple as donating a small amount of change to a local coin drive. For young adults charitable giving can include the combination of a donating and volunteering.

Helping the next generation avoid financial missteps begins with creating comfort and understanding surrounding money. When it comes to instilling the importance of financial literacy never forget that parents hold the most influence over the future behavior of their children, implementing structure will raise long term awareness and prepare the next generation to be a financially savvy one.

Alessandro Sax, CFA, is an Investment Advisor at Milot-Daignault & Sax Team of RBC Dominion Securities Global.

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