Teaching our children about financial literacy goes hand in hand with saving for their post-secondary education and RESPs.
Saving for our children's education is a priority; without a plan the rising costs of post-secondary education could leave them with crushing debt that takes years to pay off. It's important my kids truly appreciate this gift and to do that they need to understand exactly how we saved, how much we saved and what we chose to forgo in order to contribute to their RESPs.
If our kids have not learned to properly manage their education savings, then we as parents have missed a big step in the process.
Spending is the opposite side of the "coin" to saving and kids need to understand both to properly manage their money. Lessons about money management and saving for their education should start early and be part of a child's daily life.
There are lots of ways to teach kids about money sense and financial literacy at all ages.
Giving them a choice and comparing options teaches them that numbers can be broken down into smaller parts, to compare parts, and the concept of saving for later.
- You can have three pieces of licorice or one bowl of ice-cream.
- You get one soda on the weekend and you decide when, but if you have it all Friday night there will be none left for later.
- You get 2 hours of screen time on the weekend. You decide how you use it; all at once or 4 half-hour portions.
- Summer Learning: Make a folder called When I Grow Up. Decorate the folder with drawings about your top three picks for a career when you grow up. List the careers and at least 3 reasons why you chose each one. (put the list into the folder)
Now they are ready to learn the value of actual money. This is a good time to open a bank account for them that they are responsible for. We always had two, their account and the "special account" where large money gifts went. These funds required parental approval to access and spend. Money in their account was theirs to manage, which included allowance and a small portion of the money gifts.
- Talk to your child about something they really want, how much it costs, and how long it takes to save for it. Make a written savings plan that includes regular progress checkups. They will learn about saving and planned purchases rather than impulse buying. Just because you have money doesn't mean you have to spend it.
- Each time your child asks for something point out the cost in a currency they understand. For example: 1 fast food drive thru = the cost of 2 packs of Pokemon cards, or 1/2 the cost of a skateboard or video game.
- Dime Jar Multiplier Experiment: Make a chart numbered 1-30 indicating the day in numbers. Each day put that number of dimes or buttons or marbles into a jar. E.g.: Day 1 - 1 dime, Day 2 - 2 dimes, etc. Count the dimes in the jar on the 30th day. Explain that this is similar to what happens to RESP money you save for their education. It multiplies over time.
- Summer Learning: Have kids research and organize all the information they can find on three careers they're interested in. Include photos, links and resources to refer to later. (Put it into the "When I Grow Up" folder)
Tweens and Teens:
Now is the time to ramp up the financial literacy learning. By middle school our kids had their own bank account and bank cards. Allowances were auto-deposited every two weeks like a pay cheque and the "Bank of Mom" was closed for business. No more borrowing against future allowance, or birthday money.
- Have kids keep a "Cheques and Balances" sheet of spending and savings for their account, and explain the concept of debits and credits. Keep balance sheets and receipts in a binder to be balance once a month.
- Take them grocery shopping and only buy items on sale and/or you have a coupon for. Explain the increased saving of both being on sale AND applying a coupon to a purchase. The CESG for RESPs increase savings in a similar way. Even better have your kids look at flyers, and coupons to create a meal plan and grocery list before going grocery shopping. Then calculate saving from planned purchases of sale items and/or coupon use. What percentage of the total bill did you save?
- Calculate the annual savings if the amount saved on the grocery shopping trip was saved each week. Then calculate the total contributions if that amount was deposited to an RESP annually over 18 years. Even without the multiplier effect it adds up!
- Summer Learning: Take the previous research about your top career choices and expand the research to include education required, three post-secondary institutions offering the programs, the acceptance requirements and the cost of the programs at each institution. Put costs into a chart and compare tuition costs between programs and institutions. (add to the "When I Grow Up" folder)
- Have kids make a list of all the expenses and income for a year of college or university both living away from home, and living at home. Use the lists to make budgets for a year and compare the two. (add to the "When I Grow Up" folder)
- Have a brainstorming session with your child about their findings; how much will they need, how they will afford the costs, what expenses they are responsible for, and areas that need to be adjusted to better meet their education goals and stay on budget. It's important for both parties to be open and honest about their expectations in terms of contributions and what if any conditions apply. (take some notes and add to "When I Grow Up" folder)
- Once your child has read a bit about what an RESPs is get your child to make their own education savings plan with SMART goals for the expenses you have agreed they will be responsible for. This may include a new RESP or just contributions to an existing RESP.
After each lesson and stage, sit down with your kids and use what they have learned to discuss the importance of having a plan and starting early to save for their education and RESPs.
You can find several useful links to information about RESPs and post-secondary education savings in my post: RESPs and Saving for Your Kid's Post-Secondary Education.
Yep, just me Cathy thinking out loud about financial literacy and RESPs.
Note: As a Heritage Mom I was compensated for this post, and sharing my thoughts on RESPs and saving for post-secondary education. All opinions are my own and reflect my personal experience saving for my kids' education.