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Short-term goals for long-term financial success

Gail Johnson
The Save Children Movement has warned that computer games and social network stop children learning basic human development

If you've ever worked out with a personal trainer, you've heard all about setting fitness-related goals. And chances are you made them SMART ones — specific, measurable, attainable, relevant, and time-related.

Those same concepts are vital when it comes to financial goals. Help kids understand short- and long-term goals and they'll establish smart money habits for later in life.

"Setting goals, whether short-term or long-term, and working towards achieving them teaches kids delayed gratification," explains chartered accountant Robin Taub, author of A Parent's Guide to Raising Money-Smart Kids.

"This is an important life skill that kids need to develop. Strong willpower and impulse control will help them stay on task and meet their goals throughout their lives. Waiting for a reward by setting goals also helps to counter any attitude of entitlement your kids may have picked up."

How it works

Visa Canada's head of corporate and public affairs Melissa Cassar explains that goal-setting is, at its core, very simple: whether it's a five-year plan or a longer-term objective, identify what you want to achieve and break it down into what steps you need to take to get there.

It's important to get as specific as you can, Cassar says. "For example, saving for a vacation is a pretty typical financial goal, but to have a better chance of achieving it, you'd want to develop a plan of action with defined tasks and timelines.

So instead of 'I'm saving for a vacation', try thinking of it this way: "I am saving 150 dollars a month for the next year so that I can take a beach vacation next winter." The goal is now clear, defined, time-oriented, and measurable, which means that if you follow your plan, you will most likely achieve your goal.

Online goal-setting tools

There are plenty of user-friendly resources online to help adults and kids alike establish and chart out goals. Check out Visa Canada's Practical Money Skills' downloadable Guide to Help you Manage your Money .

There's also the Canadian Institute of Chartered Accountants' Goal-Setting Worksheet.

A positive cycle

"Your children are more likely to want to save if they have a specific, realistic goal in mind," Taub notes. "This could be a big-ticket item such as a car or a university education. Achieving a major goal is extremely rewarding, and this success can be self-reinforcing," she says.

Past success may encourage them to set new goals as they grow older, such as saving for a house or retirement, and to work towards achieving those.

"The money habits that kids form when they're younger can be the foundation for how they relate to money when they're much older. Setting goals and delaying gratification when they're younger teaches them important habits and skills that they'll carry into adulthood, such as paying themselves first," she adds, referring to the system of automatically setting aside money in a separate savings or investment account every time you get paid.

Needs versus wants

Short- and long-term goals force people to focus on what's important.

"By helping your kids understand and set their own financial goals, you can help teach them about needs versus wants, spending and saving, and how to prioritize," Cassar says.

For younger kids, a good place to start is when they state a 'want'— perhaps a new toy or a bike. Parents can talk to their kids about how much the item costs, look at how much money they already have saved, and then figure out how much is left to earn.

In some cases, parents might offer to pay for part of the item if their child can save up the rest. They might give their child the option to earn the money they need by doing extra chores around the house.

"Whatever approach the parent chooses, the child is learning that money needs to be earned and that they can't always have the things they want right away," says Cassar. "The child might decide that the item will be too difficult to attain, and they don't want to work that hard to get it," she notes. "That's a real-life example of needs versus wants."