Vancouver, B.C. (January 09, 2001): Teaching our children the value of money gives them a giant leg up, particularly if parents want them to mature into financially responsible adults. So, when it comes to teaching children the value of money, fee-only investment counsel and financial advisor Adrian Mastracci believes in "the sooner the better."

Mastracci, president of Vancouver based KCM Wealth Management, comments, "Clients have often asked what I would recommend to instill financial responsibility in their children and grandchildren."

"As parents, we can make a tremendous impression on our children," says Mastracci. "Teaching them about the value of money, prepares them for their future and takes away the mystery and myths often associated with money and the markets. This is a very important undertaking, even though it can be difficult to convey these skills to our young generation."

Mastracci adds, "Starting early is important because when our children become teens, our influence as parents diminishes, but those early lessons stick with them more than we know."

Mastracci's philosophy on getting children started down the road of responsible money management includes some key points:

The early years & the allowance

• Make it fun and start with small doses. Don't drown kids in financial facts.
• Think of this as a long process - it is a marathon. You may have 10 to 15 years in which to convey all the important lessons.
• Begin the process as early as possible. When the children learn basic arithmetic, take them with you on the family shopping trips. This begins the lesson on the art of compromise.
• Add up the cash your child receives as allowance, birthday and Christmas gifts, or for doing some chores. The average child receives upwards of $300 per year, more than enough to learn the value of money.
• For younger children, say around age five, it can be something as simple as starting a "savings" jar, and a "spending" jar where the allowance, say starting at $1.00 per week, is divided up between the two jars.
• Strike an agreement with the child on how to divide up the allowance, and remind them each time.
• The spending jar is a see-through plastic one while the saving jar should be a dark colour. You will find that children will save more money if they cannot see the coins and they are more likely to spend only the ones in the more visible spending jar.
• Make no mistake about it: the goal is for the children to spend money on items of their choice and pay for the purchases. Dipping into the saving jar is also allowed - just like in real life.
• I suggest giving the allowance in quarters so that over time lots of coins are placed in the respective jars. Keep a running tally of how much money is in each jar and discuss the progress every time you give them an allowance.
• Give children options they get to decide upon. For instance, the allocation does not have to be a 50-50 split every time. Sometimes, more can go in the "spending" or "saving" jar, at the child's option. My experience shows that the savings jar receives its' fair share.
• On occasion, try encouraging the children to increase the amount of savings without you increasing the allowance. This is an excellent simulation for later in life when large expenditures must be met.
• Make the receiving of the allowance a regular occurrence, such as after dinner every Monday night and make it a family affair. You will find that the child will be looking forward to it and will not let you forget. Of course, do catch up on any missed allowance days. You'll score many points for this.
• They will foul up, but let them make their own decisions, even wrong ones. For instance, if they want to buy something with their money, let them even if you disagree. Later, ask them if they are happy with their purchase and discuss the impact of that decision. It is all part of making "informed" choices. Practice will eventually get it right and don't sweat the small stuff!
• Discuss the concept that when the allowance is fully spent, there is no more until the next one. Further, there should be no borrowing on future allowances, especially for very young children.
• Guiding and helping children to save for specific purposes is an excellent practice. It is much easier for children to save for a purpose that they believe in. There is also a great sense of accomplishment when their goal is achieved.
• Children are fascinated with savings accounts. They enjoy making deposits and watching their savings grow especially if they are saving for a specific purpose. Many institutions have savings accounts designed specifically for children, are very helpful with money tips for them, and make the children feel welcome.
• Children learn better long-term lessons by making early mistakes on their own. Most of us have an easier time taking someone else's counsel after we have made enough mistakes on our own. Children are the same.
• Never link the allowances with chores. Always remind them that they receive allowances so that they learn of the value of money, not payment for chores.
• Further, do not just yank than their allowance unexpectedly or without notice. Yanking an allowance does not teach the value of money, it simply demonstrates your power to pull their allowance, a completely different lesson. The idea is to teach children the value of money.
• Start bank accounts early. Money, banks and the stock market should not be a mystery. Take your child to the bank when you make a transaction, and, whenever possible, let them make one.

The later years

• The concept of borrowing is one that you may wish to introduce when the children are more mature, say around age 10. You can choose to become the "bank of Mom & Dad" or the "bank of Grandma & Grandpa." The key is to work out a repayment plan that the child can live with and stick to. Just like those real life loans at your favourite lending institution.
• Also a reminder that you may have to deal with payments in arrears. If that comes to pass it is wise not to dance around the issue. As you know, a lending institution has the power to call the loan.
• If the children require additional money for unusual expenses, you may wish to help them earn it by paying them for duties that you would otherwise pay someone else. Say painting the fence or the spring gardening.
• Give the children more responsibility and accountability as they grow older. As an example, the allowance may grow through time where the child is partially, and perhaps totally, responsible for the purchase of certain items that you normally would buy. You have to be the judge of this, but it is wise to encourage added responsibility and accountability as children grow. It is just like life itself. It is the best way I know of to teach a child.
• It is beneficial to involve the children in the family budget discussions. With your guidance, they could be involved in discussions such as whether this is the year to buy the new home computer or the skiing gear. This approach makes them feel part of the process.
• Continue to build upon and reinforce the valuable lessons and concepts that the children were exposed to in their younger days.

"As parents, we teach our children about right and wrong, the value of work and personal responsibility. But, most families could do more to teach their children about the value of money and making informed choices," added Mastracci. "As a result, many children struggle financially because they reach adulthood without a working knowledge of their money sense.

"At the end of the day, people learn from their mistakes. So, it makes sense to let them learn when they are children and the mistakes aren't too costly. Unfortunately, I often see people who are making their mistakes as adults, with larger amounts of money, and that proves costly."

"The ultimate goal is to convey financial responsibility to the children so that they have sufficient tools to make correct and responsible financial choices both before and after they leave home. Parents will find that the cumulative effect of all these lessons will be rewarding, not to mention the fact that the parents will also benefit from this refresher," summarized Mastracci.

"You should always remember that children are not going to do what you say. Rather, it's what you actually do that makes the lasting impact."