Kids are starting on the money track sooner than their parents did, but it’s not helping them to manage money on their own any sooner, says a new CIBC poll.
The poll, which surveyed Canadian parents with children aged 24 or under, found that on average, kids are opening bank accounts, receiving allowances, managing their own money and learning about their parents’ finances about two years earlier than the previous generation did – the gap jumps to six years when asked about investing. Yet, despite the head start, kids aren’t making financial decisions on their own until age 20—a year later than their parents did at age 19.
Why the gap? While many parents are handing their kids the tools, they’re not following through to teach them how to use them. In fact, 73% of parents say they avoid talking about money regularly, which leaves kids at risk of being underprepared to manage their finances effectively.
“It’s encouraging that parents are getting their kids on the right track early on, but setting your kids up for financial success is more than just opening a bank account and giving them money to manage on their own,” says David Nicholson, Vice-President, CIBC Imperial Service. “It’s also about having frequent conversations about money matters, which can be tough to do if you don’t feel comfortable with your own finances.”
Parents worry they lack financial know-how
Parents are aware that kids are looking to them for guidance, with 93% agreeing they need to do a better job at managing their own finances to set the right example. However, the poll finds that parents are struggling to follow a budget, and almost half are currently carrying credit card debt.
“We all want what’s best for our kids, but we may not always model the best financial habits and behaviours,” adds Mr. Nicholson. “You don’t have to have all the answers, but seeking out expert advice together online or with your financial advisor can improve your family’s financial literacy and confidence as a whole.”
Moms are taking charge
The poll revealed that when it comes to teaching kids about finances, moms are the ones taking the lead.
More financial households led by women than men say they regularly discuss money matters, and moms will openly discuss nearly every financial topic with their kids, including their own salary. Moreover, more moms than dads are actively involved in helping older children manage the money they earn, despite both worrying that the stakes are high and ‘kids can’t afford to make mistakes’.
“It’s important to empower kids to make informed decisions about money. Stay engaged in ongoing conversations and seek out strategies and tools that can help them reduce risk as they learn,” says Mr. Nicholson. “For example, if your teenager is ready for a credit card, consider adding them as an authorized user to your own credit card with an assigned lower limit. This can help them learn healthy money habits – and avoid costly mistakes — while they’re still under your financial roof.”
Allowances: cash or e-transfer?
When it comes to allowances, when, how and what to give varies among parents, but most believe it’s important, shelling out an average of $91 each month. Only 13% give allowance with no strings attached, while just over half say their kids ‘need to earn it’ or are occasionally compensated in exchange for chores.
Despite the growing trend towards managing money digitally, 75% of parents still hand over allowances in cash, while only 18% deposit the funds directly into the child’s bank account.
“Consider what new skills your kids need to manage their money online and responsibly use debit cards and mobile wallets,” adds Nicholson. “Have them watch their account balance grow and shrink in real time after every deposit or purchase. You can also help them set up savings goals online where they can gain the satisfaction of watching the progress they’re making as they work towards their goals.”