Strategy 3 – Financial education for children

December 21, 2018 | Joshua Opheim


Raise financially responsible children

When it comes to your children, affluenza is a concern shared by many parents. Affluenza is the term, often used by parents, to describe a child’s distorted sense of value and less motivated attitude towards working hard and building their own financial resources as a result of being raised in a privileged environment. Most people who have built a relatively high level of wealth have done so through hard work, either as a business owner, executive or professional. Many of these people are concerned that their children won’t grow up to recognize the value of money or hard work, and they have therefore taken steps to restrict trust funds and inheritances.
An allowance to your children can provide much more than a pool of spending money.
As a parent you want nothing but the best for your children. Equipping them with the skills they need to be successful adults is a constant focus, and a solid financial education is a key part of every child’s successful future. The best way to protect your children from affluenza is to prevent it in the first place or to “cure” it as early as possible.
Here are some strategies you can adapt for your children, whether they’re still youngsters, are in their teens or are young adults:

Provide a reasonable allowance

An allowance to your children can provide much more than a pool of spending money. You can use an allowance to teach money management skills to your children. For example, your 12-year-old might get $24 per week ($2 per week for each year of age can be a starting point), divided as follows:
  • Save $8 each week for a full year. Introducing the concept of “paying yourself first” at a young age will help kids manage expectations and recognize the value of saving for the future. Along this line, consider having your children read well known and easy-to-read financial planning books.
  • Spend (or accumulate) $8 allowance each week. Figuring out how to stretch this amount over the week will develop valuable budgeting skills. 
  • Share $8 with charitable causes. Children will develop a social conscience as they decide which organizations and causes to support. This system is flexible enough to work for kids of all ages and can be easily modified to suit your family’s specific objectives.

Set limits

Parents with above-average financial resources aren’t able to say “No” with that old parental standby: “We can’t afford it.” But they still need to teach the lesson that we don’t always get what we want. One solution is to sit down as a family and draw up a monthly or semi-annual budget that accommodates reasonable activities and purchases for everyone in the family. When the kids invariably ask for something that’s not part of the plan, you’ll have an ironclad answer: “No, that’s not in the budget. But maybe we can include it next time.”

Teach them about financial statements

When children start earning income, they should understand how to read and prepare their own financial statements. In general, they can prepare their own networth statement and cash-flow statements, which should help them with budgeting. You also can consider having them take part in preparing or reviewing the preparation of their own income tax return.

Educate them about money management

Instead of giving your children a large sum outright during your lifetime or after death, consider having your children sit down with an RBC advisor to discuss strategies to invest their gift or bequest based on their own financial goals. Then, give your children the opportunity to spend all or a percentage of the annual income or reinvest it. Your children can access the capital at certain ages or after certain milestones are achieved.
Contact us today for advice on money management education strategies for your children.
Family wealth management tip
Establishing a family charitable foundation is a great way to in stil philanthropic values and money management skills at the same time. The children can take an active part in determining the best methods for using the funds in the foundation to support charitable causes. They can also work with an RBC advisor to determine strategies to invest the foundation’s capital to meet the annual disbursement quota. See “Strategy 7” for more information on charitable foundations.