Investing in our children’s financial knowledge can build a legacy that pays dividends for years to come
For many of us, our teenage years included “The Talk” with Mom, Dad or both. As awkward and uncomfortable as that conversation could be, there are likely few parents who would disagree that it was essential for the well-being of their children, ultimately helping them to avoid poor decisions and pitfalls that unfortunately plague so many young adults – and, frankly, older ones, too. As the receivers of “The Talk”, we not only survived it, but if we were wise enough to heed our parents’ thoughtful and informative words, we were likely the better for it, both then and throughout our lives.
“What’s the difference between a stock and a bond?”
“The Talk” referred to is, of course, the one concerning financial literacy. Covering topics such as earning, budgeting, borrowing, spending, saving and investing, this critically important knowledge can help your children navigate the sometimes-tricky world of personal finance. Unfortunately, Canadians continue to struggle to achieve an adequate level of knowledge on these topics. According to a survey conducted by Abacus Data on behalf of the Canadian Bankers Association, when Canadians were asked five financial knowledge questions of varying degrees of difficulty, only 13% of respondents answered all five questions correctly, and over one in three got only two or fewer questions right. The long-standing issue is acute enough to have led the federal government’s Financial Consumer Agency of Canada to renew its National Financial Literacy Strategy in 2021, a five-year plan to help Canadians build what they call “financial resilience” through knowledge and awareness.
Dollars and sense
For many wealthy Canadians, the concern can be more about how their children will manage the wealth they will receive throughout their lives, especially as beneficiaries of their parent’s and/or family’s wealth. Importantly, knowledge of financial topics can empower children to make smart decisions when building and growing their wealth as adults – and help them avoid costly mistakes, too. According to financial literacy experts at RBC Wealth Management, increased financial literacy has been shown to lead to greater resilience during predictable and unpredictable life events. Learning how to earn, spend, save and invest wisely contributes to overall well-being and stability.
Bringing his unique perspective as a youth himself to the topic, RBC Wealth Management-sponsored Canadian author Noah Booth has written a book aimed at helping teens learn about the value of money. As Booth points out in his A Rich Future: Essential Financial Concepts for Youth, not everyone successfully manages money. Financial literacy is the key to changing that dynamic.
"There is a knowledge gap among kids in the world," Booth says. "Some have access to information from parents, schools and other forms of financial literacy, while others do not. If you’re financially literate and smart with your money, you have a huge advantage in life, right from the beginning."
He goes on to say that learning how to manage money well when you’re young translates into greater stability as an adult. “Financial literacy is super important, as money is a part of everyone’s lives. When you’re older, you’re going to have to pay for your food, housing, transportation. Everybody has to deal with money. I think it goes along with other key things that are taught, such as physical well-being and mental well-being.”
Investing the time and effort in ensuring your children have the knowledge to navigate the financial decisions that will confront them through their lives can be essential to their long-term well-being and success. “The Talk” can work for many parents if they have the requisite knowledge themselves. But your Investment Counsellor can help too, bringing both their knowledge as well as important learning resources to assist. Please talk to us about building a strong legacy of financial literacy with your children, one that will pay dividends for years to come.
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