Alina Naumova/iStockPhoto / Getty Images
Back to school season feels like a fresh start. While kids are tackling a new school year, it’s a good time to start healthy routines, such as setting up a study schedule, doing chores around the house and instilling sound financial habits.
Good financial habits in teenagers lay the foundation for financial security when they become adults, and since they are unlikely to learn them in school, parents need to step in.
Checking their bank account regularly
When paper money and coins were the norm, it was easy to see money being spent. These days, teens don’t handle cash very often – debit cards and tapping phones has taken over. The equivalent of watching money disappear from a wallet or piggy bank is checking their bank account online frequently.
Kids should be looking at their transactions a few times a week because seeing the money leave their account makes all of that tapping tangible. Facing the facts of exactly where their money went will encourage them to think more carefully before they spend.
Bruinsma: When parents divorce, RESP saving can get tricky
Bruinsma: Students are finding it hard to get summer jobs – here’s what else they can do
Checking bank account transactions also alerts teens to fraudulent transactions. In my household, both of my teenagers have had this happen to them.
My older son lost his debit card and didn’t notice right away. Someone picked it up and drained his account. My younger son had his bank account information taken from an app and his account was used to order food for delivery, spending hundreds of dollars of the money he earned.
The sooner you catch these fraudulent transactions, the better.
Practise mindful spending
Mindful spending is simply being purposeful with where your money is going, It means thinking about what makes you happy or what purchases are “worth it” for you.
Part of growing up as a financially responsible person is learning from spending mistakes. It’s important for our kids to have autonomy over their money at a young age and let them make the small spending blunders early on.
If they have buyer’s remorse over a transaction, it’s an opportunity to introduce the idea of mindful spending. Ask questions such as: “Did you feel good about buying that?” and “Was it worth it to you to spend your money there?” The point isn’t to stop them from spending, but to have them pause before approaching the check out.
When they become young adults, mindful spending becomes crucial. Generally speaking, first full-time jobs don’t pay enough to allow for a lot of discretionary spending. Those years in their early 20s can set them up for financial success or failure. If they can spend mindfully, they can hopefully start putting money aside to invest, giving them a fantastic start on their long-term savings.
On the other hand, they could quickly accumulate credit card debt, a heavy weight that can have repercussions for years to come. This happened to me when I got my first job and first apartment, so I speak from experience.
Get them set up with a savings account
This might sound like an obvious habit, but in my experience, many teens don’t have a place to keep their savings. A day-to-day chequing account isn’t good enough. The temptation to spend the money in this account is too great, even if they practise mindful spending. Teens need a savings account.
You can take it a step further and open an investment account. This can be a mutual fund account at the bank, a do-it-yourself account at an online broker or an account with a robo-adviser.
Kids under the age of majority – which is 18 or 19, depending on your province – won’t be able to open an investment account on their own. A parent will need to open one in their name and hold the money on behalf of their child. (Parents will have to pay any taxes on the investment income but this will probably be negligible.)
Take the time to look at the account online with your teenager once every month or two. Show them how the investment has done. The kids in my household have money with Wealthsimple and they love to see how it’s doing. They especially love seeing the dividends land in their account – free money!
Investing in this way gives them an awareness and understanding of how it works. It also makes saving and investing the norm and therefore a habit that hopefully they will carry into their adult lives.
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.