Teaching your kids good money habits is not easy. It is not a one-time tutorial, but instead an ongoing process of setting good examples, explaining money concepts and letting them learn by trial and error. However, it is an important lesson that is often learned from their parents. Teaching them the value of saving versus spending is the first step.

Learning the Value of Saving
As frustrating as it may be to a young child not to get what they want, when they want it, it can also be rewarding. Most children learn the basics of saving through getting an allowance or payment for chores around the house and using that money to buy the things they want. However, many parents easily give in to children who beg and plead for a new toy or treat instead of teaching them the valuable lesson of how to save.

Beyond teaching children how money works, the more important value that parents can impart to their children is the satisfaction that comes from earning rewards. If a child wants a particular toy, explain the cost and what they will need to do to earn that money and how long it will take. Do not give in to children who already understand the concept of credit and asks to have the treat or toy now and promises to do chores later to earn it. This is exactly what you do not want to teach them! Instead, allow them the satisfaction of working hard to save the money they need to purchase the reward. They will appreciate what they buy even more, and learn a valuable lesson.

Here are some financial concepts you can discuss with your children as they grow up. For example, help your children learn to:

Ages 4 to 8:

• understand that people have a limited amount of money to spend
• use money to buy basic goods and services for simple transactions
• divide allowances or other money received among the financial goals of saving, spending and sharing
• understand that there are choices when it comes to money, and that money spent on one thing means that there is less money available for something else.

Ages 9 to 14:

• recognize the difference between needs and wants
• understand the importance of saving a portion (for example, 10 percent) of all money they receive and the value of an emergency fund
• create a savings plan for short-term and long-term financial goals
• identify regular financial commitments families have and know that families use household income to meet those commitments
• create a simple budget for an activity or event.

Ages 15 to 18:

• understand the pros and cons of different payment options such as cash, debit cards and credit cards
• understand different kinds of basic investments (GICs, stocks, bonds and mutual funds)
• understand the time-value of money (for example, past, present and future worth of money) and opportunity costs
• understand the concept of “living within your means” and why it is important.

Financial lessons are better learned earlier than later, when credit scores can haunt them for years to come. Give your children the tools to learn the value of saving versus spending from the very beginning, to prepare them to be independent and financially responsible.

Brian Denysuik is a local credit counsellor and registered insolvency counsellor at Creditaid who has been in the financial services industry for over 35 years.