Financial Literacy for Kids - Esther Chan, Ansonia Corporate Services
Esther Chan
Local mom and professional accountant shares age-appropriate ways for parents to teach their kids about saving and spending money.
Hello! My name is Esther, and I’m the owner operator of a boutique accounting practice, Ansonia Corporate Services, in the historical Steveston Village of Richmond, BC.
As a Chartered Professional Accountant, I have spent the majority of my career partnering with entrepreneurs to grow their businesses through strategic planning, financial reporting and budgeting.
After becoming a mother of two, my passion for helping people achieve financial success has expanded in a personal way. In my career, I am dedicated to helping entrepreneurs accumulate wealth through financial planning—and now that I have kids, I also want to guide my children on building their own financial futures. If you are a parent of young or school-aged children, you probably have a similar desire for your kids too!
That’s why today, I’m taking a little break from corporate accounting in order to guide you through concepts and actions you can take to help your children develop financial literacy.
In this article, we will be exploring age-appropriate conversations and activities around:
Earning money
Spending money responsibly
The age groups will be divided into three ranges: age 4-6, age 7-10, and age 11-13.
The importance of starting conversations about money at an early age
Before we start, let’s quickly get on the same page about the importance of starting conversations and establishing healthy money habits with our kids when they are young.
A friend once described it this way: developing financial literacy is like running a marathon versus a sprint. Financial literacy is not a concept that could be mastered overnight, it requires discipline and continual diligence to build financial confidence. Fortunately, our children have a long time horizon ahead of them and could enjoy the power of compounding if they commit themselves to a sound financial plan.
Benefits of starting now to engage in age-appropriate conversations and activities around money:
Practice goal setting
Build independence and practice making responsible choices
Develop a healthy relationship with money
What are the risks of not taking action to create opportunities for education and practice?
Unhealthy spending habits
Debt
Money worries due to lack of knowledge and lack of confidence
Now, let’s learn about how we can talk about money with our kids, and the ways we can help them build skills for earning and spending.
Financial Literacy By Age Group: Earning & Spending
Age 4-6 Earning:
Open a bank account
For the age 4-6 group, conversations about money could be as simple as asking your children these questions: What does money mean to you? Where does money come from? Does money really grow on trees? You can also ask leading questions such as What do you want to be when you grow up? Brainstorm ways in which people generate money such as working or doing chores for parents.
Try these activities:
Plan a trip to a local bank to open a regular chequing account for children and teach them how it can be used.
When my oldest daughter turned 5 years old, we made a mother-daughter trip to the local bank to open a bank account. She had a free kid chequing account with a debit card issued to her. I explained that when she receives birthday money or does chores around the house, she could deposit the money into her bank account and save for future purchases. I gave her the freedom to choose spending her savings on a “want” versus a “need”.
Age 4-6 Spending:
Identifying “needs” versus “wants”
Discuss the difference between “needs” versus “wants”. Needs are things that you could not get by without, for instance, a place to live or food to eat. Wants are items that are nice to have but you could get by without, such as entertainment.
Try these activities:
You could have a walk through your home while pointing to different items and asking your child whether that item fits under the definition of a “need” or a “want”. The tricky item could be clothing as one warm jacket is a “need” but the second one is a “want”.
Make a collage together from magazine cutouts. Divide poster paper vertically in half vertically. Label one side as “Wants” and the other side as “Needs”. Paste pictures of items on each side depending on whether they are “Wants” or “Needs”. After the collage is completed, discuss with your kid how they decided whether an item is a “want” versus a “need”.
For kids who can read and write, make a shopping list and take a trip to the grocery store together. Do a debrief afterwards to see whether you were able to stick to the shopping list or if there were any unplanned items purchased. This exercise is the initial step illustrating the key concept of budget versus actual spendings. Are there any impulsive purchases that pushed your total bill over the budget? For younger kids who have yet to learn to read and write, they could draw their shopping list instead for this exercise.
Age 7-10 Earning:
Entrepreneurship, goal-setting and simple investing
Age 7-10 is an excellent time for children to use their skills and creativity to earn money. Other than the notion of getting a job, ask your child what other avenues could generate income. Try these activities to help your children see that working can be rewarding and fun, and help them learn how they can grow their earnings through entrepreneurship and investing.
Try these activities:
Designate certain chores around the house with an assigned dollar value and allow the kids to earn their keep as a way to accumulate earnings.
Come up with a passion project to earn money that will go towards a purchase or donation to a cause that resonates with the kids. It can start as simple as a good old-fashioned lemonade stand.
Create and document their short-term (1-3 months) and long-term (3-6 months) financial goals. An example of a short-term goal might be saving up for a new shirt. An example for a long-term goal might be saving up for camp. For this age group, keep the time period between starting and reaching the goal to be relatively short. This will keep the goal fresh in the kid’s memory as they work towards it. Under each financial goal, include a few action points and allotted time to complete each step. Revisit that document often to check-in on whether your kid is on track to meeting those goals.
Besides a regular bank account, open a high-interest savings account to earn a higher rate of interest. Plan a trip to speak to a financial advisor at your financial institution. This service is often free but call your bank to first confirm. You could also inquire about a custodian investment account. For the next birthday, help them purchase a company stock and monitor its performance.
Expose your children to the concept of compound interest by visiting a website with a compound interest calculator, showing what the financial impact looks like if you save $100 over a period of time. I like using the compound interest calculator from GetSmarterAboutMoney.ca
Age 7-10 Spending:
Introduction to budgeting
For this age group, it’s time to introduce budgeting and start putting it into practice. Budgeting is planning what you could afford over a period of time.
Try these activities:
Create a “Spend, Save and Give” plan. This simple budgeting strategy works like this: Pay your child a set allowance—for example $10. When your child gets paid, they put $4 in a Spend envelope, $4 in a Save envelope and $2 in a Give envelope. Within each envelope category, your child manages how the money gets utilized. They know that each week, they can afford to spend up to $4 from the spending envelope to buy something they want before they run out of cash.
Create a paper record for tracking where the money is being spent. Inside the Spend envelope, your child should have a piece of paper to record where money deposited is coming from (e.g. weekly chore payment), and where the money is being spent (e.g. purchase from the book store or ice cream shop), and the running balance. Review this record regularly with your child so you can both understand their habits and find ways to make adjustments in spending habits if needed.
Age 11-13 Earning:
Short, medium and long-term planning
What is your dream job now? How much could you potentially earn doing that job? You can ask your children these leading questions and prepare a budget for how much they could potentially make versus some of the living expenditures (transportation, rent, food).
Try this activity:
Create and document a short, medium and long-term financial plan. For this age group, you could expose them to larger financial goals like saving up for a trip or purchasing a laptop. The details of this plan follow the same structure as the one outlined for the age group 7-10; however, for this older age group, the action plans could have more details.
Schedule a periodic recurrent reminder to check their bank account balances. For the kids with computer access, they could go online. Otherwise, the traditional ways of checking balances could be in a branch or at the ATM.
Age 11-13 Spending:
Tracking, analyzing and adjusting
Reinforce responsible spending by helping them to create a reasonable budget. Identify categories of spending with added granularity such as meals and entertainment, school, clothing and transportation.
Track spendings under these categories and then discuss the total amount spent by category with your kid. Are they surprised by how much they spent in each of the categories? Do they need to make any adjustments to their spending habits in order to have enough to save for a future need?
It’s never too late to start
Parenting is a busy job!
Adding more tasks to your regular to-do list can seem overwhelming given everything that’s already on your plate. On top of that, we as grown-ups each have our own unique feelings around the topic of finance based on our level of knowledge, past experiences and upbringings. Some people feel totally comfortable with money matters while others get anxious and want to avoid them.
If you’re struggling to get started on the financial literacy conversations and activities suggested in this article, here are three tips to help set you up for success:
Be intentional and set aside time. Just like we would set aside time to do an art project or plan a playdate for our kids, create time in your calendar for financial literacy
Make it fun and casual. Chat about and plan finances with your child over a bowl of ice cream or cup of hot chocolate.
Pace yourself. You can’t get a six pack overnight (believe me, I’ve tried), and neither can you master financial literacy in a day! So do a little bit everyday with your child and together you will reap your reward.
A message to Esther from Steveston People:
Thank you Esther for taking the time to give Steveston parents guidance on financial literacy for kids.
Are you a business owner?
Connect with Esther Chan at Ansonia Corporate Services for corporate finance, financial reporting and business advisory services.
Link: https://www.ansonia.co/
