January 24, 2024

Talking to kids about money

By Andrée-Anne Guénette

Should you wait until your children are older before you talk to them about money? Not at all. From a young age, your children can master the basics of personal finances. It’s up to you to help them.

Where do I start?

Talking about money with young children isn’t always easy. Parents often struggle to find the best way to go about it. Is it a good idea to…

  • Give them an allowance? 
  • Tell them how much you earn and what your living expenses are? 
  • Give them money to pay for certain things themselves?

Enter the Canadian Foundation for Economic Education (CFEE). The CFEE recently launched the “Talk With Our Kids About Money Day” (TWOKAM) project. The goal is to help parents on how to talk money with their children. The online program offers tools for kids as young as 5 to when they move out on their own. And it’s a real confidence booster for parents. The program helps kids learn to make the right choices for a brighter financial future.

Isabel is the mother of two children, ages 8 and 10. She thinks too many parents don’t make financial education a priority. For example, they don’t talk to their children about the value of things.

“We all raise our kids the way we see fit. A lot of my kids’ friends’ parents buy them whatever they want, whenever they want it. Clothing, toys, trinkets from the dollar store. They never question their children need these things or will take care of them, and that makes me sad. I’ve always talked to my kids about the value of things. And I buy them only what they need—nothing more. Now that my daughter is older, I give her a budget and she picks out her clothes. It’s a great opportunity for her to do the math and think about what she really needs. And what she can afford.”

What topics should we cover?

Here are some questions you can ask to kick off the money conversation with your kids:

  • What is money for and why do we need it?
  • What can money not buy?
  • How do people make money?
  • What’s the difference between a need and a want?
  • What can’t you afford now but would like to be able to buy in the future?
  • What is a loan? Debt? Taxes? Compound interest? Life insurance? An investment?

Obviously, if you try to talk to a 5-year-old about life insurance, you’re not going to get anywhere. Start with basic financial concepts. Make sure your conversations are appropriate for your child’s age and level of understanding.

The benefits of talking with your children about money

Why are parents so uncomfortable discussing money with their children? Perhaps it’s because money has become an increasingly abstract concept in our lives. These days, we use credit or debit cards to buy things. We hardly ever use cash. That is why it can be a good idea for children to have a piggy bank where they can save. It’s more concrete than having to manage small amounts, and a step towards financial independence.

After all, money is a part of independence. And it’s important for parents to model good financial habits to encourage their children’s independence. You don’t have to tell your children what you earn but teaching them what things cost can help them make better choices.

It’s also important to let children buy things when they’re quite young. For example, provide a fixed budget for each child for discretionary spending during family outings. They get to decide what to do with their budget. But when that money is gone, they can’t ask for more. If they don’t spend it all, they can put what’s left in their piggy bank.

Children benefit from making financial “mistakes” when they’re young. After all, those mistakes are usually trivial. It doesn’t really matter if they use that $10 to buy a mountain of candy. They may get buyer’s remorse and wish they’d saved up to buy a more valuable toy. It’s a good lesson in delayed gratification and saving for the future!

If a child never has the opportunity to make a mistake, when will be their first? 

  • When they turn 18 and get their first credit card?
  • When they’re 30 and take out a line of credit?

Money is about what you value

The idea of money as a value is intriguing. The emphasis we place on our finances is in itself a lesson to our children. Children learn from parents who have a healthy relationship with money. Parents who:

  • Take care of their prized possessions
  • Buy only what they can afford 
  • Save in uncertain times for their children’s education and for retirement
  • Use their money to treat themselves to experiences and material things that are meaningful

The goal is not to make children feel guilty about the fact that life is expensive. Of course things cost money, but it’s all about choice. So instead of saying “we don’t have any money”, we can say, “we chose not to buy that.” This helps them understand why their friends have a game console that we don’t want to (or can’t) buy for them, or why some families travel but we prefer to go to the cottage.

It’s also reassuring for children to know we’re saving for future goals, like retirement and education. They’re relieved to know they won’t have to bear the financial burden of our old age or student debt that can slow their transition to adulthood.

It’s about the idea that money is freedom. It’s the freedom to choose the material things and experiences that bring us true happiness.

This article is intended to provide general information only. Sun Life Canada does not provide legal, accounting, tax or other professional advice. Please seek the advice of a qualified professional, including a thorough review of your specific legal, accounting and tax situation.

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