Should your teen have a debit card? To answer that question, Kurt Rosentreter starts with a rant. Kids should learn about finances in school starting in their early years, says the certified financial planner and chartered accountant.
"Money education should be taught in schools and arguably matters more for street sense as an adult than other topics taught in school," says the author of seven personal finance books, including the recently revised Wealthbuilding: Lifelong Financial Strategies for Success with Your Money.
"Educating children about money strategies, money behaviour, and money psychology should start as young as age five and progressively develop into different topics and strategies as they age. The lessons stop around age 35. So by their teenage years, kids should already be grounded in some basics of the money system and money behavior," he says.
But few kids ever learn a thing about money in class, so it falls on parents to teach the basics. Giving up the reins can help kids find their financial footing on the road to adulthood. It all starts by being a financially fit role model.
"It is essential that parents take the lead on teaching money skills by setting an example of good behavior … and by coaching good money behavior," Rosentreter says.
The way Rosentreter sees things, there are a few ways parents can tell they've failed at teaching smart money lessons:
- Your children think the money pool is enless because every time they've asked for something you've bought it for them.
- Your children think that everyone has money on hand to buy everything and anything.
- Your child gets her first job at age 23 or older.
- You pay for everything, including cell-phone bills or car insurance for a 25-year-old.
- Your kids think it's okay to buy a pricey latte at Starbucks rather than paying off their overdue credit-card balance.
Teaching young people about debit and credit cards is a vital part of general money skills, Rosentreter explains. However, he says, they need to know the basics before they're responsible for managing an account.
"Well before you give them a card, you have to have already taught them how the banking and payment system works in Canada; what an account is; how ins and outs — debits and credits -- affect your account; how to get more money in … how balances will change and what impacts that; what interest is and how you earn it; services fees and more."
Whether they're earning an income or hitting up the bank of Mom and Dad, making that cash last is an invaluable skill. There are lots of ways parents can get their children more interested in family finances.
"It starts with teaching them the system and then giving them increasingly more control over the system as they can handle it, Rosentreter says, adding a hands-on approach is the most effective.
"Everything from taking their kids to the bank with them, explaining how to write a cheque and what it is, providing debit cards, teaching how getting a part time job can fill up one's bank account, explaining the value of money and how much something is worth, what it means to run out of money, talking about business news in the world and how it can affect interest rates … and much more, " he says.
When it comes to credit, Rosentreter cautions that teenagers need to know the rules of the road, but shouldn't be given the keys just yet. He also stresses the importance of part-time work for teenagers, which will lead to first-hand taxation and revenue experience. If your teen doesn't know what a tax return is, it's time they find out.
Still, no matter how much financial freedom parents give their kids, healthy habits still come back to just how prudent adults are themselves.
"Parents need to demonstrate good money habits: this means paying bills on time, showing sensible caring to the cost of items in front of your children, talking openly about finances … as well as charitable giving and why this is something to encourage."