Bank Notes

The earlier your kids – and grandchildren – learn about how saving works, the better. Here are these five basic strategies to get started when talking to your kids about money:

1. Discuss money early and often.

Children are (almost) never too young to start learning about how money works. If you have a toddler, a piggy bank is a great way to introduce the idea of putting money aside for future use. As children become school-aged, you can build on this lesson with three separate piggy banks marked save, spend and share.

An allowance is another great way to instill financial responsibility and independence. Simple shopping trips can lead to impromptu lessons as well, geared to the age of the child.

2. Teach them to earn their savings.

When a child wants an expensive toy, instead of saying yes right away, ask them to dip into their savings or raise the money they need through chores to learn the relationship between work and money. Take them to the bank with you to make deposits or help them set up a bank account of their own. This can help lead to discussions about the importance of budgeting.

3. Explain the difference between saving and investing.

By the time your children are teenagers they should already have a solid understanding of the importance of saving, so it’s a good time to teach them the basics of investing. Try a game that allows them to invest fake money in real companies. Help them to track the performance weekly to understand market movements. Most of all, teach them to invest early and automatically through regular contributions.

4. Illustrate the power of compounding.

It’s never too early to save. In fact, the earlier you start, the more you’ll have time on your side. To help children better understand this concept, consider using a checkerboard to play a game. Start by placing a nickel in the bottom corner square on day 1. The rule is that for each day the child leaves the money on the board, they will get double the money the next day. So, on day 2, place 2 nickels on the square above the first one. On day 3, its 4 nickels, and so on. This will also help them to understand the value of patience – and the money will quickly add up!

5. Practice what you preach.

Like all aspects of parenting, ‘Do as I say, not as I do’ simply won’t cut it for most children. Set a good example by having your own financial house in order, creating a financial plan, and regularly revisiting it to ensure you are on track to meet your short-, medium- and long-term financial goals.

You are key in helping your kids get started on the right path with their finances. When you need additional support and reinforcement, talk to a financial advisor for help.

1. For illustrative purposes only. The example uses a hypothetical rate of return of 5.0%, assumes reinvestment of all income, compounded annually, and does not include transaction costs, fees, or taxes. The example does not reflect actual results or the returns or future value of an actual investment.
2. Source: Scotiabank Parent Influence & Perceptions of Children’s Early Banking Experiences Study.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.