How to talk to your kids about debt: 5 tips to get you started
In 2014, the Canadian government conducted their Canadian Financial Capability Survey. The survey asked 14 questions about basic money matters: inflation, banking fees, debt repayment and more. What were the results? Only 2.7% of respondents answered all questions correctly. We’re not surprised; Canadians aren’t saving as much as they used to, student debt is growing, and more and more Canadians are living paycheque to paycheque.
With this in mind, it’s important to educate future generations about financial well-being. We’ve put together 5 tips to help you talk to your kids about debt and teach them about money management.
Teach your child the value of saving (especially for post-secondary)
One of the first times your child may be exposed to debt is when they use a student loan to pay for post-secondary expenses. It’s important to teach them the value of saving – make sure your child understands that the more they save, the less debt they’ll have to take on to cover expenses. A first job, or a plan to save up for a car, is a great segue into a conversation about debt and money management.
Is your child headed to post-secondary? If you haven’t had a chance to talk about their financial situation, get started with our 5 money management tips for students.
Explain how credit cards work
Another way your child will likely be exposed to debt is through a credit card. Many young adults and students are offered credit cards before they fully understand how they work. Credit cards can be very useful for building credit, but make sure you caution your child about spending habits that can negatively impact their credit score. At the same time, teach your child responsible credit card habits, like paying their balance in full every month.
Looking for tips on how to start this conversation? We summarized everything someone needs to know before getting their first credit card.
Help your child understand credit scores and credit reports
You can’t talk about debt without also talking about credit. At some point in your child’s life, they’ll have to borrow money. And, their credit score will affect how easily they can access loans. Even if your child isn’t ready to borrow money now, teaching them how their credit score works will ensure they create positive credit-building habits in time for their first credit card or loan.
Whether your child earns an allowance, earns extra money from babysitting, or has a part-time job, encourage them to create a budget. Your child will have different expenses depending on their age and lifestyle. Even if they have no expenses, reinforce the value of saving through a budgeting exercise. Suggest that they save a portion of their money for long-term savings and another portion for short-term savings. A budget will help your child develop healthy money management habits and understand the importance of monitoring spending habits.
Encourage your child to sign-up for an economics or financial course
Budgeting, credit, mortgages, loans – a lot of important financial topics aren’t taught in mandatory curriculum. But that doesn’t mean there aren’t other opportunities to learn about these topics. Encourage your child to take economics as an elective – it will teach them valuable information about supply and demand, inflation and interest rates that they can apply to their own life. We also recommend checking out the programs offered by our partners at JA Canada – they teach financial courses for children of all ages.
Remember, it’s never too early to talk to your kids about money management and debt. Looking for more resources? Check out the Government of Canada’s website for more articles and tools about financial literacy.