Generation Y, better known as millennials, are currently between the ages of 18 and 37 and have more debt than any previous generation. While the millennials’ debt is a result of many factors, such as the ease with which they can obtain credit and loans and the generation’s tendency for overconsumption, we must not overlook their lack of financial education.According to a study by PwC, only 24% of millennials surveyed have basic financial literacy, and just 8% feel they are quite knowledgeable about financial matters.
Does this mean we can attribute young people’s level of debt completely to factors other than financial literacy? We must consider that lack of financial education may be one of the causes of the millennials’ financial situation. Schools no longer offer courses about the economy and personal finances, so the responsibility to educate this generation about finances falls to their parents. Since loans, credit cards, and other financial products are available to anyone, young people are not protected from debt overload.
Financial education starts at home
Your children’s financial education starts at home. Parents, you have many opportunities to teach your children the value of money and how to create a healthy relationship with finances every day. Many methods are available, such as:
- Giving them an allowance;
- Teaching them how to use their pocket money;
- Not giving them money when they run out;
- Refuse to endorse their expenses;
- Encouraging them to save money;
- Understanding the difference between a “need” and a “want”.
Pocket money
Explaining the value of money to your children is no easy task. At an early age, explaining that you must work for money might be too complex of a concept for your children to grasp. That’s why a system of monetary rewards for housework can help your children make the link between working and earning a “salary”. In order for this system to work, you must ensure that the task is suitable for your child’s age, but also that the rules are clear from the beginning. For example:
- Vacuuming: $3
- Washing dishes: $2
- Taking out the trash: $2
Establish the monetary value of the work and stick to it. If you need inspiration, the internet is overflowing with examples and chore systems for children! The system itself is not important; what matters is the lesson your children will learn about the value of money. However, make sure you don’t mix household chores with responsibilities, such as making their bed. Your child can have responsibilities at home and make money by doing additional work.
Shopping
Giving your children pocket money will certainly give them a desire to buy things. That’s the time to teach them to shop smart:
- Look for items on sale;
- Look for specials at different stores;
- Taxes and how to calculate them;
- Brand names vs. “no-name” brands;
- Haggling;
- How to read price labels.
Shopping will become an integral part of your children’s lives eventually. It is better to learn to shop smart sooner: they will benefit from your advice for the rest of their lives. However, it is important to remember that your children probably won’t understand all the concepts immediately, depending on their age and their ability. By taking the time to explain these concepts regularly, your children will fully grasp them over time.
Saving money
Your shopping trips can also be a way to introduce the concept of saving money to your children. Saving money is a fundamental concept that will be part of your children’s lives in many ways as they grow up. If you have implemented an allowance, your children may want to buy something with what they’ve received, but won’t have enough. Be careful: resist the temptation to cover the difference. Instead, take this opportunity to teach them about saving money. Explain the concept of saving up to buy something they want so that they can buy it when they have enough money. If you have a chore board at home, show them which chores they will have to do and how many times they will need to do them to reach their goal. Your children will be much more motivated to do their chores!
By teaching them to save money at a young age, your children will be more inclined to pay in cash or by debit card instead of by credit when they become adults. Teaching your child to save and wait to obtain what he or she wants will have a positive impact later on when they have the choice to wait or go into debt to obtain something. You must also be careful not to become a bank for your children to turn to when they need money. This bad habit could stick with them for a long time.
For more adventurous savers, you can even encourage your child to deposit some of their allowance into a savings account. Teaching your children to save money could help them avoid debt overload in the future. They might not appreciate it at the time, but they will certainly thank you later.
“I want” vs. “I need”: knowing the difference
There is an important distinction to be made when talking about money with your children: needs and desires.
We all know basic human needs: shelter, food, clothing. These needs are essential for survival, and must absolutely be satisfied. Desires, meanwhile, are anything that makes our lives easier or more pleasant, but that are not essential to our survival. We are exposed to needs and desires from a very early age. Since parents usually fulfill their children’s basic needs, it is normal for children to use their money on things they want, like toys, outings, or electronics.
To instill the concept of needs and wants in your child, we recommend teaching them from adolescence to purchase some products that fulfill their own basic needs, such as personal hygiene products. That way, your children will get used to making a budget to meet their needs on a regular basis. They will learn to fulfill their needs first and their desires second.
Setting an example
“Money does not grow on trees”. Money is not an endless resource, which is why parents must educate their children about personal finances. You’re the first role model for your children, and from a very young age, they will try to imitate you in many ways, including your consumer habits.
Also, your child may struggle to grasp some concepts if you do not apply them yourself! You can teach your child great financial skills, but if you do not use them yourself, you may not appear credible. You must therefore put your own finances in order to be a good example to your children.
If your finances are not in order and you would like help or a free consultation, contact a Ginsberg Gingras Licensed Insolvency Trustee. Together, we can make a plan to erase your debts and balance your budget.