Bad with money? Your kids don’t have to be. Basic financial lessons you can start teaching them today

Financial literacy starts at home, is nurtured by parents, and gets reinforced at school — but we can’t leave it all up to the teachers.

Even if you aren’t very good with money, you can still teach the most important financial lessons to your kids. Start with these simple concepts; they’re the foundation kids need to build their knowledge about managing money — and you might see benefits to your own finances, too.

Start talking — it’s time we make money less taboo

Unlike how most parents grew up — shamed and embarrassed when talking about money — kids and young adults today thrive with financial learning in an environment that welcomes conversation. Simply starting to talk regularly about money, in a positive and simple way, can be the launching pad for making youth feel financially empowered as early as five years old.

Here are a few conversation pointers for parents who’ve never spoken about money with their kids:

• Emphasize the power of choice rather than lack. “We are choosing to buy high-quality, nutritious food” versus “This food is expensive. How are we supposed to afford it and stay healthy?”

• Show how money is about balancing enjoying today while also saving for future enjoyment.

• Reinforce that money needs to be put to work in order to grow; the power of investing.

• Managing money well is like nurturing a long-term relationship. It takes regular effort, and a willingness to learn over a lifetime.

Rich parents teach their children that money doesn’t buy happiness, but it does reduce stress and fear — a priceless piece of knowledge that can be taught by any parent no matter the condition of their finances.

Fostering an abundance mindset through budgeting

Most parents were taught to budget through a scarcity lens; never enough and always wanting more, then feeling guilty for that want. It’s important for children and teenagers to understand that spending money on things they value is acceptable and normal. This approach cultivates a healthy relationship with money, as opposed to a mindset rooted in scarcity and fear.

The fundamental principle here is to live within one’s means.

Parents can guide the basic budgeting process with a “buckets” approach. A basic budget for a young person can be divided into three key buckets: saving, spending and giving.

The percentages for each will change as a child grows and their needs change. At a minimum, encourage at least 20 per cent in savings because that’s about what it takes to eventually retire. So developing this habit now will pay off.

As children mature, they can develop more detailed budgets. Students going to college, for example, will need to budget for expenses like rent, meals and books.

Show them the major advantages of starting to save early

There’s nothing like showing a young person how saving $30 a week until they retire turns into a million dollars.

That’s right!

Young people have the most important advantage in saving for success; time. The earlier a child starts investing, the longer their money benefits from the power of compounding. Money earns interest and returns which are reinvested into the original amount. Then that larger sum earns interest and returns. Repeat. Repeat. Repeat.

The habit of socking this money away for the long term is the most important part here. The next step is getting the money to grow by investing it well. Teens often learn a bit about investing in high school, which is a great time to show them a compound interest calculator, take them to your next appointment with your financial adviser, and learn about different investments together, like ETFs or managed portfolios through a robo-adviser.

Debt isn’t all bad, and can actually help

Kids as young as three start to understand what owing money means. So it’s best to talk openly and early about using debt wisely, and steering clear of expensive debts, which can lead to financial fear and anxiety.

Student loans, student lines of credit, mortgages or business loans; these are good debt used to help grow assets. Encourage your youngster to not be scared of these, but rather learn how to use them.

Credit card balances, personal loans, car loans; these are bad debts used for things and experiences that often decrease in value. Talk about the importance of paying off credit cards on time and in full.

There’s so much to share, teach and learn when it comes to money, and it can be a bit overwhelming knowing where to start. Take it slow. Learn with your kid. And support them as they explore building credit, creating a resume, investing in their education and so on. You won’t have all the answers, but your support and encouragement will go a long way in preparing them for a financially secure future.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.