Not everyone is born with the skills to be a sound money manager or investor. Instead, we learn how to make smart financial choices from different sources throughout our life. And as we have children (or grandchildren, or nieces and nephews), we can help them by passing on what we’ve learned. Here are some good lessons that you can impart to children of any age.
For children 10 years old and younger
All children learn from seeing and doing, but this is especially true for kids 10 years old or younger. You can help kids of this age by talking to them about the values of coins and small bills as they start to learn about numbers. You could also let them use real money to make “pretend” purchases of household items, and then show them how to make proper change.
During this time in their life, it’s important that you model good spending habits. When you’re out shopping with them, explain that everything costs money, and show them how to compare prices and how to buy items on sale.
Discuss the importance of planning by preparing a list ahead of time and using it to avoid impulse purchases.
For children age 11-15
Once kids are old enough to earn money by helping around the house, babysitting or doing chores for neighbors, you can teach them more about the four pillars of finance.
- Spending – Have them allocate some of their earnings to a fund that they can spend how they want, such as for purchasing music, movies or games.
- Saving – Also have them allocate money toward longer-term goals like saving for an expensive device or a bike. Explain to them that the purpose is to help them learn the satisfaction of saving for a goal and then ultimately achieving it.
- Giving – Encourage them to donate some of their money to a charitable, religious or educational group that is important to your family, and help them realize the sense of satisfaction that comes from sharing what you have with others.
- Investing – Play an informal stock market game by tracking the performance of several stocks of companies they can relate to through the products they use. Explain that investing offers both risks and rewards – and that successful investors often hold stocks for the long term.
For young adults age 16-21
Young adults may be saving money toward more expensive goals, like buying their first car or helping contribute to their college education. If this is the case, consider matching a certain portion of their savings as an incentive.
This could also be a good time to open a custodial account to make small investment transactions on behalf of young adults who have the proper maturity and financial resources. When they become legal adults, the custodial account is then transferred to them to manage, after which you could still offer to help them make decisions before they buy or sell securities. In terms of investing for education goals, custodial accounts are considered assets of the student for financial aid purposes.
As a financially responsible adult, you can do a lot to help the children you care about become proficient with money today, while learning to invest for tomorrow.
This article is provided by RBC Wealth Management on behalf of Donald Cussen, a Financial Advisor at RBC Wealth Management, and may not be exclusive to this publication. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional foradditional information and guidance.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC