Welcome to our final instalment on how to teach your kids about money. This week we are going to tackle what financial concepts to focus on with your pre-teen, as well as plenty of ideas for how to develop those concepts in ways that have real life applications.
So let’s get right into it! Here’s our handy checklist of area’s to focus on with your 11-13 year old:
Increase their ownership and understanding of their saving, spending and giving strategies;
Help them identify opportunities to obtain a regular job;
Once they secure a job, show them how to file their taxes;
Open up an RRSP as early as possible;
Openly discuss the utility of post secondary education;
Consider turning over management of their screen time;
Level up their chore list. Include teaching them how to plan a meal, by budgeting, creating a list of ingredients, shopping and putting it together;
If they have a cell phone, show them how to review their bill and pay online;
SPENDING – SAVING – GIVING
You’ve been working hard at building the solid habits of spending, saving and giving with your child. Now’s the time to let your child take the lead.
That doesn’t mean you are going to step away from the process, but now instead of making the decisions on your child’s behalf, you are going to be the guiding voice and sounding board to help your child talk through, and reach their own decisions.
So revisit the percentages for spending, saving and giving. Allow them the room to come up with a strategy about what they think those percentages should be, and more importantly, why?
Dedicate the time to your child in discussing their plan, offering sound feedback, suggestions or advice if your child goes way off track, but also give them some leeway to make errors as well.
You will still want to be leading the charge for quite some time when it comes to investment decisions, but the more you can discuss your decisions and thought processes with your child, the better equipped they will be when it comes time for them to take over their own accounts down the road.
Set aside a specific and regular time (ideally monthly) when you talk about investments, review their portfolio, and discuss any changes that need to be made to contribution amounts or allocations.
Allow them to be the one sitting in the computer chair navigating their online investment accounts. This will help them become familiar with the platform, with the confidence that you are right there to guide them through the process. This includes letting them fill out any brokerage order/sales forms when you do make changes or additions to their holdings.
Talk about compound interest. Take advantage of online calculators and tools that allow you to show them examples that demonstrate the power of time when it comes to saving/investing. There are lots of awesome free calculators out there that can allow you to input various investing scenarios and outcomes, like this simple and easy to use one from Get Smarter About Money.
Take your child’s current holdings and calculate conservative estimates of how much money they would have at various ages, if they didn’t invest a single penny more. Demonstrate what those numbers would look like if they continue to make regular contributions. Give them examples that they can relate to.
Drive this concept home, and revisit it frequently.
When it comes to charities, now is a great age to inquire if they want to research and select their own charities. Some kids might be perfectly happy to continue donating to the charities you (and they) have already established, where as others might enjoy the opportunity to look for and invest in charities they feel strongly about.
This provides a great chance to have open discussion with your child about their research, charities they have identified, and why they want to donate to those charities. Merely going through this process provides kids with amazing opportunities to hone their ability to conduct research, distill the information they read into salient points, and relay that information to you in a confident and articulate manner.
Allow them some additional freedom and independence when it comes to their spending decisions. Step in if necessary, but don’t be afraid to let them make mistakes either, and most definitely continue to have them do their own market research when it comes to any purchases they want to make.
Every time they review their findings with you, whether it’s in relation to a charity, a possible business they want to discuss investing in, or a purchase they would like to make, it steadily refines life skills that are applicable to so many different avenues. Increasing their confidence in presenting information they have learned, and opinions they have formed.
Practicing this in the comfort and security of their own home, with their parents, is the perfect place to start. Leading them to not only feel more comfortable as a well informed consumer, donor or investor, but also in speaking up, presenting opinions or asking questions in a classroom setting, or even a workplace.
The Job Market
Some kids will be super eager to obtain a job, and the freedom that comes with having a regular paycheque, others…..not so much. But even if your child is resistant to the idea, help them push out of their comfort zone and identify a job that works both for them, and your family schedule.
Because let’s be honest – at this stage, your child having a job is almost certainly going to translate into more work for you. Whether that’s getting them to and from their job, or in some cases even being there with them while they do the work (IE: officiating sports).
But as much as it might mean more time on your part, every minute is going to be time well invested when you evaluate the life AND financial skills they will be learning.
I’d had 21 jobs by the time I was 19 years old. Yup 21 different jobs. And it’s not because I quit all the time or job hopped, rather many of my jobs were seasonal, and I moved around a bit due to playing hockey. But regardless of where I moved or what season I was in, I generally had 2-3 jobs on the go at any given time.
That translated to a lot of resume writing, a lot of cold calls to various businesses to drop off applications, and a lot of job interviews. It also meant having the confidence to walk into a business at 12, 13, 14 years of age and ask to speak to the manager. I remember the first time I did that – I was so nervous. But fast forward to my 20’s, and when it came time to go through rigorous interviews for the job that would become my career, I was pretty seasoned at the whole process.
While I was still nervous, my experience gave me confidence in my interactions with the interviewer, I didn’t rush through my answers, and I have no doubt it played a major role in moving past that stage of the interview process.
So while at first blush you may wonder if driving your child to and from hockey games, and spending an hour or two watching them referee is in any way worth the $10-15 they might be getting, just remind yourself that this piece of financial literacy is about a lot more than just a paycheque.
Tax Time & RRSP’s
Okay – you’ve been doing “taxes” with your child for years now right? It’s a great process, they know the drill, and you move through the whole thing with lightening speed.
That’s when you know it’s time to up the ante.
If your child has successfully obtained a job for which they receive a T4, it’s officially time to help them file an official tax return. Why file a tax return if your child is making even just a few hundred dollars per year?
Because here in Canada, their income is what determines their eligible contribution room for a Registered Retirement Savings Plan. Because there is no age restriction on who can have an RRSP, your child can literally start building that room AND contributing, as soon as they are producing reportable income!
And if you are here, reading my website content, I probably don’t need to convince you about the benefits of saving for retirement early.
While that’s a big enough reason all on it’s own, it doesn’t even touch on the benefits of simply showing your child how to complete their taxes. Taxes can be a super intimidating area for a lot of people, and while I strongly believe that paying for the expertise of an accountant is 110% worth it as your finances become more complex, it’s still very important to have a solid understanding of the tax process that applies to you, and essential to understand how to file a basic return.
Seeing as how your child’s taxes will be incredibly uncomplicated at this stage, it’s the best time to gradually introduce them to the process. When they enter adulthood, they are going to be extremely confident and knowledgeable in the process, hopefully helping them avoid EVER paying for a late return, and highlighting the importance of proper tax planning.
Post Secondary School
While we have personally elected to start this dialogue with our kids at an even younger age, I strongly recommended that, at a very minimum, you start discussing post secondary school with your kids NOW.
And no – not in the let’s plan for what you are going to take and cement your career path kind of way. But rather, discussing with your child that post secondary education is an OPTION.
Not a given.
In the era of crazy tuition and crushing student loan debt, the last thing you want your child to assume is that post secondary education is just something that people do after the graduate high school.
Rather, encourage them to consider post secondary education in terms of its utility. Is it a requirement of their desired career path, will it provide them an advantage or edge in their chosen line or work, do they even know what career path they want to pursue?
If the answer to any of those questions is no, we should be encouraging our children to critically analyze if post secondary education is an investment worth making.
While I absolutely support my kids in pursuing post secondary education, I also want them to be perfectly clear on the fact that I don’t expect it, and if they have an alternate plan or path on which they would rather pursue their desired career, I will also wholeheartedly support them in that.
Having said that – I still take full advantage of the Registered Education Savings Plan here in Canada, because hey, if my kids do decide to go to college/university, there will be savings to help them mitigate the overall cost. (But I do expect them to pay for some of it themselves…...part of that whole developing appreciation for what we have thing.)
Hopefully you’ve implemented some type system to control your child’s screen time up to this point. If not via my WII $ system, an alternative framework tailored to your specific family circumstances.
Well – nows a great time to consider handing over control to your child. Factoring into your decision should be an assessment of how well they have handled the boundaries you have put in place up to this point.
If they’ve managed them well, and shown strong self-discipline in this area, they are probably ready for the transition to occur. If not – maybe some additional maturing in this area is appropriate, in which case you can just maintain the status quo.
If you do decide to hand over the reins to your child, do so with a clear understanding that it does not mean they have unlimited access to devices. It does mean that they will be in charge of managing their screen time, and keeping it to a reasonable level. It’s also important they understand that if you observe that they are having difficulty managing that responsibility on their own, you will step back in.
Understanding that their parents will continue to monitor and be mindful of their usage will help them maintain an expectation of outer accountability, assisting with the over all transition.
But making that transition is also a way to tell your child that you recognize that they are maturing, you trust that they are responsible, and you have faith in their judgement.
It’s also very likely to be a scenario where they will encounter some initial failure. And that’s totally okay. Overstepping boundaries and pushing the limits are a thing pre-teens and teenagers do. Having parents who are consistent in the maintenance of those boundaries is actually very reassuring for them. And from a parent perspective, if they are going to be pushing boundaries, this is a much easier area to manage than others!
Despite giving your children more control over their screen time, I do strongly recommend that you maintain limits when it comes to children having devices in their bedrooms. Not only is this an area that can create immense problems for your child, it is also incredibly tempting for your child to use their device when they should be sleeping.
Often this stems from a fear of missing out, and comes at the cost of sufficient sleep. Sleep that is far to precious at this age/stage of development to be jeopardized.
Time to level up that chore list once again! This time, more than just your child helping you cook a meal, I highly recommend having them be responsible for a family meal.
I’m not talking just lunch for themselves here, but a whole family meal. So whether that’s a dinner, or a weekend breakfast, have them plan ahead to identify a meal the whole family likes, or something new for everyone to try.
Set a budget for the meal, show them how to review recipes in order to build a grocery list, and have them go shopping with you, being mindful of their budget along the way.
Once they have all the ingredients at their disposable, act as their assistant in preparing the meal. While you might play a very active role in the whole process in the beginning, the more adept your child becomes at reviewing recipes (and establishing some go to favourite meals) the less hands on you’ll need to be.
This is a great way to teach kids how to meal plan, and how to buy groceries on a budget (not to mention prepare healthful food for themselves and others!)
Oh and remember how we talked about the requirement for developing understanding if we hope to raise kids who are full of gratitude? When your child experiences what it’s like to plan and cook a whole meal for a family, they will probably develop just a bit more gratitude for their parents that do it the other 95% of the time!
You can also have your child make suggestions about the chores they would like to complete. Maybe there are certain ones they feel particularly good at, or ones that the enjoy doing. So help develop the chore list together, so that they have ownership over their tasks AND you can make sure those tasks support the family in a helpful way.
I’m not going to get into the whole cell phone or no cell phone thing here. I already wrote a whole post when it comes to my views on cell phones! It’s one of very few areas that I take a rather absolute perspective on.
But I certainly recommend that whatever you decide for your own family, that kids definitely pay for their own cell phone bills. From my view, if my kids want a cell phone, they will need to have jobs to both pay for the phone and the accompanying monthly bills (even though the bill will have to be in an adults name).
If you’ve decided that your child is mature enough to have a cell phone AND you’ve agreed to a monthly bill in your name, showing them how to review and pay that bill is a must.
While automating has long been cited as a great habit to establish for managing bills and avoiding late payments, I believe that going through the monthly process with your kids has value.
Teaching your kids to set a monthly reminder and actually review their bill BEFORE payment is made, is an excellent way to teach them to evaluate and manage their usage AND identify any bill errors.
If there are bill errors, you can then show them how to contact the company to discuss and remedy it. If they are consistently going over their monthly usage limits, this is a great opportunity to help them identify why, and develop strategies to curb that issue.
Walking them through making the online payment, while it seems small, is also a very useful skill that will be essential as they get older.
This also provides a platform to talk about the importance of paying bills on time, how bills of this nature build aspects of their credit score, and how late payments can negatively impact said score.
The Bottom Line
If you follow this 4 part guide to teaching your kids financial skills, you will cover off all of the following:
- The development of patience and how to delay gratification;
- How to identify their personal values and goals;
- Differentiating between needs vs. wants;
- Evaluating spending decisions, and prioritizing wants by determining what aligns with their personal values/goals;
- Strongly rooted savings and investing habits;
- A solid understanding of investment accounts, how to complete brokerage order forms, and how to select investments that align with their values/goals;
- Understanding of compound interest and the advantage of time;
- Social responsibility, and how to select charities who’s objectives align with personal values;
- Self-discipline, the ability to plan ahead and manage resources;
- Entrepreneurial confidence in building income streams;
- Familiarity with business and product planning, market research, information gathering, critical analysis and presentation skills
- Strong communication skills, resume writing & interview skills;
- Critical analysis when evaluating the utility of Post Secondary School for their specific life goals;
- Budgeting, bill payment, and filing tax returns; and
- Following through on commitments and taking ownership.
And so, so much more.
When your child is firmly into their teen years, you will have established a rock solid foundation of not only financial literacy, but helped them to develop supporting and complimentary life skills.
As they move into their teens, you will continue to act as their guide, building on that well established foundation, but taking a graduated back seat to the decision process.
You will also have provided them with the tools and knowledge that will allow you to introduce to them to some of the more technical aspects of investing, career, retirement and tax planning. But even if you didn’t teach them another thing about money – they would have a stronger knowledge base surrounding money than the vast majority of society.
That’s a pretty substantial advantage.
Thanks for reading our four part guide! If you are implementing some of our suggestions in building your child’s financial literacy, please leave us a comment or send us an e-mail. We’d love to hear your thoughts and feedback, and we are always happy to answer questions if you encounter any hurdles in this process. See you next week!