A recent blog post I read on kids and allowances nicely captures the growing sense of urgency these days about teaching children to handle money. The post is titled Five Reasons Not to Give Your Kids an Allowance. It argues that allowances can set a bad example for kids and that there are better ways to teach financial literacy.
Public schools across the country are adding financial literacy content to their curriculums, and universities and colleges are showing more interest as well. The e-mails I get from parents show they're thinking hard about their children's finances. One dad e-mailed to say that I wasn't being tough enough in a recent newsletter that was headlined 21 things you should make your kids pay for. I suggested that parents pay big costs for their children – say car insurance – so the kids can put money away for university or college. He thought kids should pay some of their expenses and save the rest.
The push to teach kids the right messages about money is obviously driven by the anxieties that have lingered since the financial crisis began a decade ago. Debt levels have soared and savings rates have stagnated at low levels. Adults know this is a problem, but economic data consistently shows that many of them aren't doing anything about it. Trying to mould their kids into money geniuses is a substitute.
It's vital that we teach kids about money. As I see the next decades unfolding, there will be more and more responsibility on individuals to balance spending and saving to achieve a comfortable retirement. This is because pension coverage is declining, while people are living longer. Teaching financial literacy at school and at home is a great way to prepare kids for the future.
But it's important for parents to not just talk about smart money habits, but to actually live them where possible. Your kids may listen to what you have to say, but they also watch what you do. Show them how you make compromises to live within your means and save. That's the core message.
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Rob's personal finance reading list…
A guide to managing an elderly parent's finances
An aging population means a lot of us will have to take a role in guiding our parents' financial affairs. Here's a guide on some of the key things to watch out for.
23,400 reasons to avoid extended warranties
A thorough takedown of the extended warranty you'll be offered whenever you buy appliances or electronics these days. Summed up in three words: Waste. Of. Money.
How to keep kids from losing mittens and toques
OK, hats and mitts are not big expenses. But it's darned inconvenient to have to keep buying these essentials every winter. Here's a system for helping your kids hang onto them.
Save your furniture
How to remove stains from an upholstered sofa – everything from gum and grease to animal waste.
Today's featured financial tool
Here's a calculator that helps you decide between a contribution to a TFSA versus an RRSP based on your tax situation.
The question: "We have $20,000 we would like to place in a short term investment, as we have two large expenditures we are planning over the next couple of years that will deplete this money. We have no TSFAs. What vehicle(s) would you recommend? At the end of the day, we need quick access with no fees or penalties."
The answer: I'm getting a lot of queries these days from readers who want to keep money safe for short- to medium-term needs and are asking for help in finding a parking spot with a decent return. I think they know a high-rate savings account is best, but they're hoping I know of something better. I do not. If you need money in the next five years and can't afford to lose any, stick to a high-rate account with a top return. A ladder of guaranteed investment certificates is OK, too, as long as you're sure you won't need to use your savings before the GICs mature.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length.
What I've been writing about
– This will be the year that kills home-ownership dreams for many aspiring first-time buyers
– 2018 is shaping up as the year of the cocky investor (for Globe Unlimited subscribers)
– Nine things you need to know to survive the next online brokerage traffic jam (for Globe Unlimited subscribers)
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