A slightly troubling statistic: 6 out of 10 Canadians failed a recent basic financial literacy test. And only 31% of Millenials passed the test. That says a lot about the current state of financial literacy in Canada's youth—not great news.

The good news is that you’re here and reading about it. It’s really not that hard of a thing to teach. And the habits you establish in your children now are far more likely to stick, and serve them well in the real world, so it’s never too early (or late, for that matter), to start.

But, where do you start? And what do you teach? And when? Bright as they may be, your toddler isn’t going to grasp the nuances of compound interest. And your school-aged kids probably don’t need an introduction to sharing. 

So we’ve broken down the most important principles around money, how to manage it, and how to make it grow into appropriate age groups, so you’ll have a better idea of what to teach—and when. Keep in mind that children learn at different rates, so this list is more of a guide than a prescriptive checklist.

Ages 3 to 5

Delayed gratification

Research shows that children who are willing to sacrifice short-term gratification in favour of meeting long term goals tend to be more successful later in life. So there’s no better time than early childhood to introduce this basic concept. This can be as simple as counting the days up to a big event and playing Simon Says. This also builds the foundation for understanding more complex topics like investing and compound interest later in life.

Needs vs wants

The difference between what we desire and what keeps us warm, fed, dry, and safe isn’t always immediately obvious to kids, so the distinction often needs to be taught. Use your daily rituals like meals, trips outside the home, and interactions with others to help your kids understand the difference between a need and a want. This can be the difference between needing nutritious food and wanting candy, needing to read books versus wanting to watch shows on the iPad or even needed to do chores instead of wanting to play with toys. 

Sharing and charity

Much of the good in the world is the result of generosity and giving. In young children, this concept can be demonstrated as simply as sharing toys and taking turns or helping parents with small chores. If you volunteer at an organization, bring them along to show them what it means to help out. If you donate to a cause, talk about it; explain why the organization needs your donation, where it goes, and who it helps. These things can instill a life-long sense of empathy, community, and demonstrate the importance of helping others when their own needs are met.

Ages 6 to 10

The concept of earning

Teaching your child the concept of earning early will help them prepare for the reality that most people have to work to pay for everything they want to own or do. Consider providing a weekly allowance in exchange for completing tasks that contribute to the household—dusting, vacuuming, walking the dog every day. As your child grows older, you reinforce the idea by giving them more responsibility and increasing that allowance. It’s a good idea to keep these tasks separate from their normal day-to-day personal responsibilities like keeping their room clean or cleaning up their own messes. After all, no one pays you to make your bed.

Saving and spending

Learning to save may be an extension of delayed gratification. But piggy bank or no piggy bank, saving in and of itself can be very gratifying for children, and helps establish healthy financial habits that will serve them well later. Open a bank account with your child and encourage them to deposit money regularly. As most kids don’t have many expenses, it’s an ideal time to establish this positive habit. Create milestones for motivation; “How long do you think it will take you to save X amount?” Watching the number grow over time is exciting and will motivate them to save more. 

Ages 10 to 14

Include kids in financial decisions

As your kids get older, including them in some of your financial choices can be a powerful tool to teach them about the value of goods and services, and budgeting. When you’re shopping for groceries, talk through why a name brand item is more expensive than the generic brand version; consider factors like cost per weight and packaging. Shopping for a new vehicle? Walk through the buying decision, discussing everything from features to cost to mileage. The goal here isn’t necessarily to choose the less expensive item, but for them to understand why they arrived at that purchase decision. This will help them make reasoned and rational financial decisions in the future.

Since it's relevant to them, back-to-school shopping is a great opportunity to educate your child about budgeting and making smart purchasing decisions.

Setting financial goals

If your child has been saving their pennies, you’ll eventually want to talk about financial goals — another lesson in delayed gratification. You don’t have to start talking about mortgages and retirement—these concepts are just too far off and perhaps too complex to make an impact. But this age presents a great opportunity to weigh short term wants against those that are a little further off in the future. Buying new clothes every month is great, but will shopping prevent you from owning a car later? How much will you have to work or earn to meet your goals? Present these ideas not so much as a way to enforce the way you would like them to spend, but to have them truly consider the long term impact of the purchase decisions they make.

Ages 14 to 18

Working

Eventually, your increasingly independent teenager will need (want) more money and a weekly allowance won’t cut it. Instead of paying out of your own pocket, this is a wonderful time for them to experience a rite of passage known as their first part-time job. In Canada, you’re legally allowed to work a real job at 14 years old, and we encourage you to allow your child to work as much as current commitments allow. Their first job will expose them to important concepts like work ethic, balancing home, school, work and life, and most importantly for the purposes of this blog post, earning more money. 

Budgeting

The additional money earned at a part-time job can make some of their long-term financial goals real. That car they want? Suddenly, it’s only a year away. Spring Break ski trip? They truly earned it. Continued saving? That’s what we like to hear. Suggest dividing earnings into three categories: for spending, for goals, and for saving. The ratio is up to you and them to establish. But the idea is to have money they can spend whenever they want, money that goes into longer term goals like a vehicle or other big-ticket item, and the final is for continued savings (and keeping up with already-established good habits.)

Ages 16 to 18

Understanding credit systems and debt

The credit monitoring companies in Canada, TransUnion and Equifax, use the FICO system to give every person with a social insurance number a credit rating. While the exact details of how individual scores are established is something of a secret, we know it’s determined by factors like your payment history, credit utilization, how much debt you carry, the length of your credit history, your mix of credit, and new credit you apply for. 

Your credit rating in Canada determines your ability to borrow money, and at what rate. Having a low credit score can make it difficult to be approved for a mortgage, a car loan, or in severe cases, a phone plan. 

Help your child or children establish good credit habits early. Teach them the difference between good debt (education, housing) that acts as an investment, and bad debt (credit cards, bills) that should be paid off immediately. 

Guide them towards getting their first credit card, and show them the best ways to start building credit

Investing and compound interest

More than simply saving, investing is the way that most people build the wealth required to meet financial goals and retire comfortably—even early. In fact, the interest accumulated after four decades of investing can be exponential and eclipses the actual amount of money they invest. If your child has been saving money from an early age, teaching them to invest their money will allow them to see their efforts pay off many times over. But the most important thing is to teach them is that the earlier you start, the better. 

Start teaching today

Learning about money concepts; how to earn it, manage it, and make it grow is a life-long journey. But good habits start at home. Teaching your children about money early will give them a strong understanding of, control over, and relationship with money—and that’s a strong indicator of future financial success. Remember, it’s never too late to start. The best time to plant a tree was yesterday. The second best time? Today.

Fresh Start Finance serves Canadians with practical advice on personal finance and credit-building solutions. Whether you have bad credit or no credit, we know how to help make your financial future brighter. Bookmark and subscribe to our blog for more useful tips, or speak to one of our consultants today to see how we can help!