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Set
Your Child on The Road to Financial Smarts
Think
back to when you sold lemonade, or mowed lawns, or baby-sat the
neighbour’s kids, and how thrilled you were to have cash in your
hands to show for your efforts. Perhaps you also remember getting
your first bank account, and watching your savings grow.
Through
these little satisfactions, you were learning key financial lessons: the
relationship of work to money, the magic of compound
interest, and the importance of setting goals.
When
it comes to teaching your kids how to manage money, you no doubt have some
experience to draw from. Click through the links below for a list of
helpful reminders you can pass on to kids of any age.
Starting
out
Kids
are quick studies, so it’s never too early to start teaching them about
the value of money. And though we all sometimes feel that we ourselves
could benefit from financial lessons, try to lead by example and show your
kids how to be responsible with money. Here are a few ideas to get you
going.
Get
them a piggybank. A proxy for a bank account, and one of the best
ways to help kids learn how to save. Try to limit what you put in to coins
or smaller bills. It will provide a lesson in counting, and show your
children the importance of saving even small amounts. If friends or
grandparents give your child a $20 bill, for example, show them how it
breaks down into loonies and toonies.
Give
them a weekly allowance. Another great way to teach kids how to
manage money. Let them know it’s their money to spend how they please
— toys, treats, whatever strikes their fancy. And by all means let them
learn from their mistakes. If their allowance runs out, it will teach them
to be responsible and plan ahead.
Pay
the allowance in coins and smaller bills. Then, encourage your kids to put
some of the money — say 10% of their allowance — in their piggybanks
(or bank account when they are older). Explain that these savings can then
be used at a later date to achieve one of their goals, such as buying the
DVD they’ve been talking about.
A
good way to encourage this is by offering to top up their savings every
month. Count the savings together, and then match it by 25% to 50%. This
will introduce them to the concept of compound growth and help them learn
to align their savings to their own goals, such as buying a DVD or new
bike.
Eventually,
you can bring some of these lessons together by helping your children open
a bank account.
Learning
while earning
Most
of us probably earned our first real money delivering newspapers,
shoveling snow, mowing lawns, and baby-sitting. By all means, encourage
this kind of entrepreneurship in your kids.
And
as they get older, support them as they look for summer jobs. Having a job
— or creating their own employment — will establish a clear link
between work and money, and help to instill lifelong values in your kids.
Financial
tip. If you own a business, put your kids to work and pay them a
reasonable salary. If your child invests his or her employment earnings,
any investment earnings they earn will be taxable in their hands, not
yours.
Longer-term
goals. Sit down with your child and talk about some of their
longer-term goals — perhaps a used car or a trip to Europe. Web-based
financial calculators can break down what they need to save in order to
realize their dreams. To help them along, offer to top up some of their
yearly savings.
You
can also introduce them to a safe investment, such as a GIC, that can be
used to meet their goals.
Financial
tip. Encourage your older children to file a tax return. With
their low incomes, they are probably not required to, but doing so will
help generate RSP contribution
room for use later in life. For instance, $2,000 in summer earnings
will generate $360 in contribution room that can be carried forward
indefinitely.
University-bound
For
many older teens, attending university will be the first time they will
have to manage money — and deal with daily and monthly expenses — on
their own. If your kids are heading off to university this fall, help them
prepare with these tips.
Automate
bill payments. If your kids will have to cover regular monthly
expenses such as phone or cable, help them set up automatic bill payments.
It’ll give them one less thing to worry about at school, and will force
them to have the money in their account each month. Paying bills on time
will also help them build a solid credit history.
Search
out scholarships. Up to $3,000 in scholarship and bursary income is
tax-free. The government of Canada’s CanLearn
Websiteis a great financial resource for all students. It also has a
searchable database of available scholarships.
Claim
all credits. The tuition tax credit also applies to library, lab,
computer, and other fees.
Keep
employment earnings. If your kids will be working during school,
chances are they probably won’t earn enough to pay tax. To boost their
cash flow, have them file a TD1 with their employers so no tax is withheld
at source.
Be
smart with credit cards. Encourage your kids to use credit cards
wisely, or as a last resource, and to pay them off on time (ideally in
full). Be sure to shop around, as all credit cards are not created equal.
Check into possible fees, interest charges, and any rewards. Cards
designed specifically for students typically come with low credit limits
to discourage abuse.
[Source:
Scotiabank: MyVault]
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