The Gift of Financial Cheer!

No, it’s not a lottery ticket. But trust me, the odds are much more in your favour.

(First, a little background information.)

When Ryder was first born, prominently featured in the “new baby” booklet were ads for Registered Education Savings Plans (RESPs). At the time, I promised myself that I would look into it – after all, having been through university myself, I was acutely aware of the costs of education. Still, the days were long and the nights were even longer, and just like that I forgot all about RESPs.

And really, if I had an extra $100 kicking around? I was spending it on formula and diapers.

Two years later, when Ryder was two years old and his little brother made an appearance into this world, my own brother inquired: “So, have you set anything up for the boys yet? For school or whatever?” I admitted that I hadn’t. And I couldn’t be bothered! I had two babies to take care of and a couple of bucks into a bank account to be used eighteen years down the road seemed the least of my concerns.

Then, Ryder began showing signs of social anxiety disorder, and it was strongly suggested I place him in a Montessori-type setting. Pretty quickly, I had to re-shuffle my lifestyle and finances. I mean, who assumes that they’re going to pay for kindergarten?? It’s just A-B-C’s and 1-2-3’s!

Two years later, I had invested almost $15,000 into Ryder’s kindergarten education.

It was the reality check I needed. Because one day, God-willing, both boys will require funds for their post-secondary education, and I never want to be caught off guard again. And at the same time, I want my sons to understand the value of money, the importance of saving for their education, and have an active role in investing in their future.
The holidays are a great time to begin the conversation, especially since many parents and grandparents find themselves thinking about what to give a child as a present. According to a recent TD survey, more and more parents, grandparents, aunts, uncles and godparents are choosing to give the children in their lives some form of financial gift, including cash or an RESP contribution. Some see this not only as a monetary gift, but also as a way to start teaching children about responsible money management. 

“Parents know it’s important to help their children learn healthy financial habits, and they are looking for simple, relevant and fun ways to start,” said Linda Mackay, senior vice president, retail savings and investing, TD Canada Trust. “Giving a financial gift for the holidays, like a contribution towards their RESP or cash to kick start their first bank account, is a great way to get the conversation started.”

The TD survey also found nearly 90 per cent of parents think it’s important to start talking to children about finances before they reach their mid-teens. Almost four in 10 think the conversation should begin before their children are 10 years old.

(My conversation went something like this: “Okay Ryder, you’re 6-years old and already $15K in the hole to me. I’ll consider the debt interest-free but it’s gonna take a whole lotta chores over the next 45 years or so. Now would be a good time to start. Meet the broom – your new best friend.”)

Even very young children can learn the basics about managing money, such as the value of a dollar and how that dollar can add up through regular saving, ultimately allowing them to pay for something they really want down the road. “As children get older, parents can expand the conversation to cover more complex ideas, such as basic budgeting and setting spending priorities, building up to things like investing early and the power of compound interest,” Mackay says.

MacKay offers some age-specific advice on how a financial gift can be used to help a child learn good financial habits:

Under 6 years old: Keep it really simple. Give a child some shiny coins they can put in a jar or piggy bank to watch their savings grow. Make the experience of adding to the jar a big deal and as the number of coins grows, swap them occasionally for the equivalent amount in crisp bills. This helps the child understand the value of different denominations of coins and notes and develop a sense of pride in their savings habit.

6 to 10 years old: Start introducing more complex ideas, such as how long it will take to buy something a child really wants if they save a certain amount of money every week. The financial gift can be used to help them get closer to that goal. This is also a good age to help children open their first bank account so they can learn to make deposits, withdrawals and watch their funds grow. The importance of money and saving can also be reinforced through things like a small allowance, perhaps earned through set chores.

11 to 15 years old: The gift of a contribution to a child’s RESP creates an opportunity to talk about how investments like a Registered Education Savings Plan work, the importance of investing early to take advantage of interest and why saving for post-secondary education is also an investment in a child’s future. Your children might also be earning a little money through odd jobs or baby-sitting so it is a perfect time to talk about goals, budgeting and saving for something they’d really like including university or college.

This Christmas, both boys will receive a small toy and a sizable investment in their RESPs. Because the real gift here is financial education, which is the foundation needed to develop healthy financial habits in the future.