When is the best time to start learning about personal finance? Busy lives combined with the ease of using credit and debit cards may have a lot of us wishing we’d invested more in financial habits when we were younger. Luckily, it’s never too early nor too late to fine-tune spending and saving habits. Since children are currently home, now may be the best time to instil lifelong financial lessons in your children.
Habits made early are habits that last
Parents can give their kids a head start in developing a healthy relationship with money by introducing them to good money management habits. Methods like the “three piggy-bank system
” can introduce young children to the idea of learning to save toward a goal, setting money aside to give to charity while still having some left to spend as needed. This method allocates a percentage of their money to savings, charity and for spending, helping create a healthy relationship with money. It also teaches children the difference between discretionary spending and saving, and long-term benefits of saving for a goal.
Setting a budget
The good thing about habits is that
with a bit of effort
it’s possible to break even the unhealthy ones. It may feel daunting, but maintaining good habits will ensure you’re laying the foundation for future financial goals. The first place to start is by understanding and creating your budget, which helps you track your spending, saving and knowing what goals are feasible for the future. When it comes to money, knowledge is definitely power. Include your children where you can to show them budgeting lessons at an early age. A written plan
helps families at all stages, and once the big picture is clear, you can then move on to planning for the future when the time is right.
Understand your options
Common goals when planning for the future may include saving to buy a home, as well as developing a long-term retirement plan or saving for your children’s post-secondary education. The key here is to remember to pay yourself first
. In other words, once you’ve covered your bills, make sure you pay into your long-term savings goals.
Once you know your goals, you can allocate non-discretionary income (ie. things outside of rent/mortgage and utility bills) toward your savings goals. Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs) can help make this type of saving easier by allowing you to make contributions to the plans each month automatically. Some employers also offer funding matching schemes that could even double your monthly savings.
Finances are part of everyday life
Seeing everything in black and white can give you a good overview of where you’re spending wisely and where some discretionary spending could be trimmed. Finances are part of our everyday life, especially in adulthood. Being open about finances with your children helps them prepare for the realities of being independent and gives them the confidence to ask the right questions. Understanding monthly bills, how interest works, and how to secure loans will set your children up for futures success.
By learning good habits today, parents can help set the stage for their children’s future educational success and help them avoid the burden of excessive debt in the future. The lessons learned today can help your children plan for healthy financial futures of their own.