By the time Kim Deep’s three children were teenagers, they were all financially literate. She started them early, at ages three, six and 10. Each kid would separate their allowance into jars representing what they could spend on things like movies, gifts and big purchases, as well as what needed to be socked away for savings. They all paid their fair share to Mom and Dad, too. A portion of their earnings had to go towards rent, clothing, and other essentials, so that they understood money is not just for fun – it’s essential for everyday necessities.
Deep is a financial expert who runs Business by Numbers, a company that helps organizations balance their budgets. She’s also written a children’s book about finances and for years ran financial literacy workshops for youth. When it comes to educating kids about money management, she says, the earlier the better. But it’s vitally important that teens understand finances and how to manage money on their own. The teenage brain is very susceptible to marketing, making the desire for the newest piece of technology, or the trendiest clothes that much stronger. But instant gratification rarely coincides with financial responsibility. “It’s incredibly important to teach teens to have a purpose and intention for money. If they don’t have goals, they are going to buy the latest thing because they think they have extra cash,” says Deep.
Using a jar system like the one Deep used with her kids may be low-tech and simple, but seeing their savings grow in a tangible way can be motivating. Deep recommends kids put 10 per cent of their money into long term savings, 10 per cent into fun (it’s as important to enjoy their money as it is to save it), 10 per cent into giving (which creates awareness and social responsibility), 10 per cent into a contingency fund, 10 percent into education savings, and 50 per cent into necessities like shampoo, school supplies and lunch money.
“Having a system—whether it’s the jar system or an online program or apps for management—will alleviate the emotional rollercoaster that money brings into our relationships,” she explains. Read: no more whining for extra cash when their allowance runs out – if there’s nothing left in the fun jar, they’ll have to save up for their next trip to the movies. A system is also an effective way to change mindless spending habits like wracking up iTunes purchases or buying daily lattes.
Of course, instilling these values and knowledge around money is not an easy process. Deep believes most teens will make mistakes when they first start out. “But I’d rather they spend money foolishly on smaller dollar amounts when they are learning, than when they are 22, and they ruin their credit rating because they took on a car loan and didn’t know what they were doing,” she says.
One way to set them up for success, though, is allowing them to spend their cash on stuff they really want – sometimes. “People get into trouble when they save all their money for later,” Deep explains. “Because if fun is withheld, you may binge later and blow it all. It’s about having doses of fun, and being conscious of where the money is going.”