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Oct. 21, 2005
Taking kids to money school
Strong money management skills will serve children well in future.
ROB GRAD
As anyone who's visited a toy store with a child or grandchild
knows, kids understand the concept of spending money at a young
age. What children don't always learn is how to save and spend wisely.
Here are a few saving and investing basics your children will enjoy
learning. They can practise these skills every day, no matter how
young they are.
Learning to earn
Paying your children an allowance to do family chores is a good
way for them to learn the value of money. It also opens the door
to discussing the essentials of financial planning, such as banking,
saving and spending.
With older children, you can lay the groundwork for their retirement
savings by helping them file an income tax return once they start
earning money. They usually won't owe any taxes, but filing a return
will generate contribution room for a registered retirement savings
plan (RSP). This contribution room can be carried forward until
they have enough money to make contributions and can take advantage
of the tax deductions.
Encourage your children to put aside a portion of any money they
receive. They will learn quickly that spending their hard-earned
money on a cheap toy might mean they can't afford to buy a more
expensive video game later.
Beginning to budget
Offer to help your older children establish a workable budget. The
budget could factor in money they earn or receive, regular expenses
they expect to incur and required savings for specific goals.
Budgeting can help them distinguish between short-term savings (a
new CD), medium-term savings (a new bike) and long-term savings
(post-secondary education).
Investing for growth
As your children grow older, you can teach them the basics of investing.
The first step might be to open a savings account for them. This
is your opportunity to discuss how banks pay interest for money
on deposit. With straightforward compound-interest calculations,
you can show them how quickly a regular amount set aside each month
can grow.
As a next step, try letting your older children invest in a company
that produces something they know and like. Showing them where to
find information on their holdings in newspapers and on the Internet
will make tracking their investment fun and rewarding, and give
them a real sense of ownership.
While teaching your children about saving and investing will help
them get on the right financial track at an earlier age, remember
that few children can tackle major financial undertakings –
like the cost of post-secondary education – on their own. To
help your children save for their education, consider making annual
contributions to a registered education savings plan (RESP). This
plan allows savings for their post-secondary education to grow tax-sheltered
until they need it and lets them benefit from the Canada Education
Savings Grant (up to $400 per child per year) that your RESP contributions
attract.
Rob Grad is a financial planner with RBC Investments at
Oakridge Shopping Centre.
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