Retirement, Save Your MoneyMarch 2, 2020March 30, 2020

Why Teaching Your Kids About Finance Is Important

Do you remember ever learning about finance in school? I don’t. However, just because I wasn’t given this opportunity in school does not mean that I did not learn a little bit. I was fortunate enough to dip my toes into the water of finance due to my family. However, there are many people who still have negative spending or financial habits. However, this article is not about those who currently have bad habits, it’s about why teaching kids about finance is essential.

Not teaching your kids about finance, even a little bit is doing a major disservice. Although, I do not mean teaching your 7-year-old about taxes. What I’m talking about is embedding good financial habits into your child while they grow up. However, before we get onto that, let’s talk about what the formal education system is missing.

What Formal Education Is Missing

We all have varying opinions on how formal education works. Some think it’s antiquated while others believe formal education to be a necessity in life. Regardless of what your beliefs are, there is no doubt that it is lacking in various vital areas. It’s true that in university you can specialize your courses. This means that if you want to learn all about finance, you can dedicate your time and resources to doing that. However, high school and below is a different story.

There are no classes that teach you about the practicality of learning about finance. For example, my school never had a class that taught about investing, personal finance or taxes. Any of these would be extremely advantageous. Especially doing your own taxes. Doing your own taxes offers many benefits and will save you money in the long run. Being able to do it whenever you want, understanding what is on your t4, and not having to go to an H&R Block.

There is an argument to be said about your family teaching you about these things. However, what if your family is not educated in this field either? What if you don’t have the resources to learn externally? School teaches you many things, one of which is to think critically. However, practical life lessons seem to be scarce. Finding the slope of a parabola does help you think critically. However, offering tax problems that make the student think critically will most likely have an equal or greater effect.

Another problem I see is that school systems are stuck in their old ways. Although becoming increasingly progressive, especially towards social issues. The base template is still the same. I.e. Sitting in a class all day, listening to the teacher ramble about the Pythagorean theorem. Furthermore, schools are built to produce people who’re meant to join the workforce at a base level. However, school, especially in the early stages should be a place that fosters growth and creativity.

Disadvantages Of Not Teaching Kids About Finance

One of the simple answers is that they will grow up and make avoidable mistakes. Almost everyone I know has made multiple common money mistakes. I, for example, I have made many mistakes. Although many of them were avoidable, I did not have the knowledge or foresight to see what was wrong until it was too late. Let’s take people who fall into pyramid schemes for example. To someone who isn’t gullible, it’s an obvious scam. However, to those who’re unaware, paying $500+ for the “potential” to earn millions sounds like a great idea, until it’s not.

Saving is another huge problem. Many young adults work a part-time job. However, what do they typically use it for? Maybe a vacation, a car, or paying off school. Although all of these (except the vacation) can be a worthy investment, there may not be any room for saving. Saving is critical. Knowing your goals and saving towards them is a skill. Even if you do not have a goal in mind, like many youths won’t, they can still save until the day they want to make that goal a reality.

Teaching kids about finance will also shape their spending habits. This is a big area of improvement for many people. Growing up knowing the power of a dollar and how much it’s worth. Teaching kids habits such as cooking instead of eating out or not buying brand name clothes all the time. Of course, most youth will likely spend their money as quickly as they get it.

However, not teaching your kids, who’re in high school, about RRSPs is only doing them a further disservice. Especially is they have apart time job. Most people start an RRSP when they acquire a full-time job. However, opening an RRSP with a major bank and helping your child deposit small amounts from their paycheck will make an astronomical difference in the long run.

To summarize, the disadvantages that occur when you don’t teach your kids about finance can be life-altering. These disadvantages are (but are not limited to) poor spending habits, lack of an ability to save, lack of financial discipline, and poor judgment. Of course, you can always learn about this post-high school. However, the idea is the train the mind when it’s young. That way the good habits become second nature.

Advantages Of Teaching Kids About Finance

The advantages are vast. The main advantage would be making the correct financial decisions. However, mistakes will always be made regardless of prior training. Experience is the best way to learn. Therefore, failure and mistakes are necessary and inevitable. However, some mistakes are avoidable. I already mentioned the pyramid scheme but let’s look into another common mistake.

Buying an absolutely new car. Purchasing your first car can be an exciting time. However, if you’re young. buying a new car right off the lot may not be in your best interest. Purchasing a new car is extremely expensive and unless you’re receiving a luxury brand, the depreciation will cost you. A car is what we call a depreciating asset. The longer you have it, the less valuable it becomes. A new car and one with 10,000 kilometers can have drastic differences. Although the wear and tear on the car are nearly negligible, buyers won’t see it that way.

The best option is to purchase an older car (doesn’t have to be extremely old) because the depreciation will have already set in. Therefore, if you want to sell the car within a year, you’ll get a considerable amount of your investment back. However, this is dependent on how you treat the car during your time with it.

Another advantage is that the knowledge you pass down will be paid forward. Your kids will teach there and so on. This’ll create a lineage of good spending habits. Although, you can definitely teach your grandkids about finance. However, most of their time will be spent with their parents. This means the knowledge that you’ve bestowed upon your children can become generational knowledge. Furthermore, this knowledge may create generational wealth.

At the end of the day, it’s all up to the person and how they use this knowledge. Will they take that information and turn it into something positive or just brush it to the side. Only time will tell but doing your part in enhancing your children’s financial future is the first step/.

Shameed Chris Khan

Shameed is just a man on a mission to help those around him gain financial success. Obsessed with writing about all things finance, this GTA native is constantly learning and sharing his experiences with others.