Financial Friday #97: Money Smarts Learned Early Last a Lifetime


The list of lessons to teach your kids in their tweens and teens is long. It's an impressionable age and there are plenty of pitfalls to warn them about, so personal finance may be pretty far down your list. Other issues are definitely a lot more life-or-death, but how your offspring manage their money is certainly an issue that will last a lifetime and have serious repercussions for both you and your kids — unless you want them living in the basement until they are 40!
 
Enriched Academy was actually founded with the aim of helping youth and young adults. We work with school systems in several provinces as well as colleges and universities across the country to deliver programs specifically designed to teach the financial basics and deliver them in an informative and entertaining package. Financial literacy programs at school are becoming increasingly requested at schools, so hopefully your kids are able to take advantage of one. If not, here are three basic lessons that the school of mom and dad can get started with.
 
It sounds so cliched to say, "make savings a habit" and really is only half the picture (you need to save and INVEST your money) but developing a saving mindset early in life will pay back huge over the course of a lifetime.
 
For example, if your teenager averages $150/week in 2022 income and invests 30% (spends 60% /donates 10%) of that from they time they are 18 until they retire at 65 at 8.29% (the inflation adjusted historical 30-year return on the S&P 500) they would have $126,269. If they waited four years until after they finish college and invested the same amount at the same rate, they would have only $90,736! They could also open a TFSA when they turn 18 and that $126,269 would be tax-free.
 
Lesson 2 was already demonstrated above, but your kids need to learn the value of investing their money, how compound interest works, and a few basic investing principles (diversified holdings, long-term timeline, keeping annual fees to a minimum). The next time your teenager complains about the price of something, use that as a springboard to mention rising inflation and how it is constantly gnawing away at any cash savings they have.
 
There are a few ways to get your teens invested. You can open a trust account, or more simply, open another TFSA account and invest the funds on their behalf (you can have multiple TFSAs in your name as long as you stay within the contribution limits) .
 
Lesson 3 is more applicable to adults these days, but maybe if we had learned how to live within our means and manage our discretionary spending in our youth, 50% of us wouldn’t be living paycheque-to-paycheque. Budgets and expense trackers are great tools if your teens are interested, but that isn't too likely from our experience!
 
They key is to have them set up to two banks accounts and put a portion (30%?) of every paycheque, birthday money, etc. into a "no-touch" high-interest savings account. The rest can go into their daily chequing account and they can spend it any way they want – it isn’t necessary to earmark it for a purpose or even track that cash if they don’t want to (Hint: getting them to use debit instead of cash lets them easily review spending in online banking). They just need to know that when the chequing account runs dry, there isn't any more until next payday.
 
These three fundamentals will get your kids off to a good start and you can fill in some of the how-to’s (e.g., what to invest in) along the way. If you think back to your upbringing, you can probably see how it has affected the way you manage your finances today (whether for good or bad!). Why not take some proactive steps now and save your kids from having to learn financial lessons the hard way down the road!

Resources

The accountant's guide to resetting you personal finances
Who knows more about managing money than a gaggle of accountants? The Chartered Professional Accountants (CPA) website has some pretty good blogposts, and this quick read has some practical tips to get your 2022 finances in shape.
 
BOC rate hike hold pours gas on housing fire?
The decision to leave rates unchanged is a nice reprieve for existing homeowners, but it may have added fuel to an already blazing housing market as investors and homeowner hopefuls look to buy and lock in financing in the face of imminent rate hikes.

 
Personal finance IS a High School thing!
In case you missed the above article, this one was written by students and although it's from south of the border, it makes some very solid points about why teenagers need financial literacy and the role parents can realistically play in their financial education.
 
4 Common TFSA mistakes to avoid
Borrowing to invest, contributing and withdrawing in the same year, incorrectly listing your spouse & having no year-end tax plan... if any of these sound like something you may be guilty of (or now considering) make sure to check this one out for some good advice.
 
40 years at the same price!!!
Not only do Japanese snacks for kids sound a lot more healthy than ours, they are also inflation-proof — the manufacturer hadn't raised the price since 1979! The good news is that despite the just announced 20% hike, they still only cost around 14 cents a piece!