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Money Management

Money Management for Children (and Adults too!)

September 22, 2006

Being a relatively new parent (my daughter is already 11 months old!) the thought of teaching money management skills to my daughter has crossed my mind. It is said that much of a child’s behavior is learned from her parents which can have lasting effects well into adulthood. Raising a child to become a financially successful and responsible adult can be a series of small but deliberate steps taken with the guidance of parents. Below are some suggestions on how to help your children become fiscally responsible.

  1. Within the first year open an in-trust or youth account for your child and begin putting all gifts of money into this account.
  2. Within the first two years, if finances allow, obtain a Social Insurance Number and open a Registered Education Savings Plan (RESP). Contributions to an RESP are eligible for at minimum a 20% Canadian Educational Savings Grant. Children born in Alberta in 2005 and subsequent years will automatically receive a $500 Alberta Centennial Education Savings Plan grant when the plan is opened with $100 to follow when the child reaches age 8, 11 and 14. To open an account a minimum of $500 is required. A well-invested RESP should cover a good part of post-secondary education costs for your child. For more information on RESPs log on to Financial Planning.
  3. As early as age 4 or 5, have the child come to the Credit Union or use a Member Card® Debit Card to make deposits.
  4. At age 6 or 7 consider starting the child on a weekly allowance. Teach them about the 10 and 10 rule. Tithe 10% to charity and pay yourself (save) 10%. Choose a charity such as your church or consider sponsoring a third world child through World Vision or some other organization – the charity should be something they can relate to and see the benefits.
  5. With their remaining allowance, allow them to make their own choices (within certain parameters). If they blow their allowance on the first day, do not cave in and provide more. This discipline is an excellent way to teach kids how to budget and delay instant gratification that money can obtain.
  6. Once they are 10 or 11 consider having them make financial choices for their future such as contributing to an RESP or setting up an in-trust mutual fund* account. After these accounts are established, a monthly pre-authorized contribution (PAC) plan can be set up for as little as $25 or $50 a month. At minimum teach them to invest excess savings in a higher yielding GIC, term deposit or Canada Savings Bond.
  7. Increase their allowance as they get older. Once your child is a teenager, you may want to consider setting a clothing budget and have them compare/shop to stay within budget.
  8. In their early-to-mid teens, introduce them to the concept of borrowing money. If they want a big-ticket item and have not saved enough money to purchase the item, consider giving them a loan. Then set up a payment schedule complete with interest charges. Teaching them about the cost of borrowed money is an important concept that will be useful throughout their lives.

All children are different and there is no one-size-fits-all approach for any one child. These are just a few ideas to help your children achieve financial success.

*Mutual Funds are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.

®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.


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