Have the money talk with your children

"The money talk." It may be one of the most important conversations you ever have with
your children, but many families aren't sure how to approach the subject and what precisely they should be discussing. Here’s how to start the discussion and make sure you're covering some important bases. Remember that your financial advisor can be a resource as you implement early saving strategies for your children.
Teaching kids about money from a young age can ensure that they start off on the right foot when they become old enough to manage their own affairs. The key is to guide them towards making their own sensible decisions, rather than dictating a particular course of action. Children need to learn from mistakes, as well as successes – so let them make small-scale mistakes from time to time, and talk constructively about the good and bad consequences of their choices. In addition, children learn by example, so try to demonstrate the behaviours you want them to adopt. Most money management lessons for children revolve around five basic concepts; earning, spending, saving, borrowing and sharing.

EARNING

Children can earn money through allowances and various jobs. There are many different perspectives on the question of allowances. Some experts advise that parents provide payment for household chores; others argue just as forcefully that it's important for children to learn that some tasks are considered "family responsibilities" without any monetary reward. One compromise may be to provide a base level allowance to all your children, and then to offer additional money for out-of-the-ordinary chores, such as shovelling the driveway or helping to organize the basement. When it comes to jobs outside your home, encourage children to start small (for example, raking leaves on a neighbour's lawn) and move on to jobs that require a bigger commitment (such as paper routes or babysitting).

SPENDING

As soon as children start to earn money, point out that they have choices for spending it. Then let them weigh the options and make their own decisions. Teach them the difference between "wants" and "needs," and show them that you don't buy yourself everything you want either. Explain the relationship between price and quality. You can also encourage children to start budgeting by tracking all their earnings and expenses in a special notebook.

SAVING

Saving is one of the most important life lessons when it comes to money. Starting the habit of setting aside some money each time they receive it (10 per cent is a good rule) will serve children well as they grow up. Begin with a piggy bank and work up to a first bank account. Explain that saving lets them accumulate enough to buy more expensive toys or trips to the movie theatre with friends. Consider matching the money your children save at the end of each year to help motivate them.

BORROWING

As children get older, you can begin to teach them the basics of borrowing. For example, you could top up their savings with a small loan that enables them to buy something they want, and offer an interest-free grace period during which they can pay the money back – after which you will charge a reasonable rate of interest. Rather than forgiving a loan if children don't think they can pay it back, show them how they can reduce expenses or earn extra money to meet their obligations.

SHARING

Children often have a natural desire to help others. Encourage this by getting them involved in community projects and pointing out that they can share their time or their abilities, as well as their money. Explain that the rewards of sharing go beyond public recognition, and that they can make themselves and others feel happier through some very simple, generous actions.

The bottom line is that it's important to ensure that your parents are prepared for the financial consequences of growing older, and that your children learn good money management skills that will last a lifetime. In addition, talking to your parents and children openly about financial matters can enable you to plan as a family for the best long-term financial results. For more ideas about how you can start the conversation with your family, speak with your advisor.

• Trevor Franklin is an investment Advisor with Canaccord Capital Private Client Division. Contact asktrevor@canaccord.com to request the free report  – 7 Questions All Advisors Must Be Able To Answer