How to give the gift of financial literacy
Tannya McBride (Finance ’07) might argue that it’s a myth that money is an impersonal, thoughtless gift. That’s partly because, as the parent of a toddler, she’s experienced the trouble with toys: they fascinate briefly but they accumulate more or less permanently.
“He doesn’t get tired of playing with my spatulas,” she says of her young son, “but he doesn’t touch these toys.”
As an instructor with the NAIT JR Shaw School of Business and a certified financial planner, McBride believes there’s real value in the gift of money – not just because it can help control post-Christmas or birthday clutter. Such presents are learning opportunities, she says. A life of budgeting and debt lies ahead, but hopefully also investing and saving.
“It’s important to start these money management habits early,” she says. It’s a gift that could serve kids all their lives. Here are some of McBride’s ideas.
For infants and toddlers, long-term saving isn’t necessarily the goal. Goal-setting itself is what's important. Consider giving 2 banks: one for coins and therefore short-term purchases, and another for bills for more expensive items. Give transparent banks “where they can see the money piling up.”
“Kids will start learning how the real world works.”
For the older kids, notify friends and family of goals and suggest they give a variety of denominations – coins and bills – so kids can make decisions about how to allocate their funds to reach their goals.
As kids reach ages 6 and 7, formalize the goal-setting and saving process by helping them to open a savings account for their gifts. “Engage them in the process,” says McBride, by taking them to the bank. “Let them ask the questions and do the talking.”
This has the bonus of positively affecting future credit scores, which partly depend upon the length of time a client has been with a bank.
Pre-paid credit cards
Giving young teenagers pre-paid credit cards could be seen as a potential life lesson. It doesn’t familiarize them with credit, “but it does teach them how to spend their money,” says McBride, and prepares them for our largely cashless world.
Unlike bills and coins that are actually traded for stuff, debit and credit card transactions are intangible. Using one with a known limit of invisible money requires planning. “Kids will start learning how the real world works,” says McBride.
Convincing most kids to give away their presents isn’t an easy sell, regardless of the cause.
Entice them with the reminder that they’ll get more than a donation certificate in return. Consider giving them the tax credit they would receive based on the value of the donations they collect. (You can calculate it yourself.)
Encourage that entrepreneurial instinct, says McBride.
Minors can’t make investments, but you can do it for them through an in-trust account, says McBride.
Name a child as the beneficiary of an account holding a savings bond, GIC, term deposit, mutual fund, even a stock (if you already have your own and are paying brokerage fees), with the added benefit of a paper certificate to be presented as a gift. A registered education savings plan can be set up the same way.
RRSP contributions will brighten the future of kids who are working and paying income tax. If a 15-year-old puts $100 a month into a mutual fund (earning, say, 6 per cent), she’ll have $30,000 when she’s 30 years old, McBride points out. That's worth explaining. “You’re teaching them the concept of compounding of money.”
Small business kits
When McBride was a child, her sister used to collect beads from the floor of their mother’s jewelry shop to make bracelets to sell in the summer. Encourage that entrepreneurial instinct, says McBride – enable it, even. Help older kids invest in lawn- mowing or snow-clearing equipment, dog-walking supplies or other money-making plans that interest them.
That way, “they can start to develop their business skills” alongside good financial habits, which McBride sees as no different than encouraging kids to brush their teeth, eat well and clean up all those toys. “Why shouldn’t we teach them that at an early age, like everything else?”