Little did I know when I signed my son up for kindergarten the tough financial lessons that awaited him.
He'd lived a sheltered life until then, free from advertising and peer pressure, so I was taken aback when he burst out of his classroom one day and requested I buy him the same gaming device his friend had brought for show-and-tell.
I couldn't deter him by quoting the $200 cost of the gadget or with the fact that I thought he was too young for one. He did eventually back down when I explained how many weeks it would take to save up enough money from his allowance, since I wasn't going to buy the device for him.
The pressure to keep up with peers starts early and only increases as students get older, says Gary Rabbior, president of the Canadian Foundation for Economic Education. College students are particularly vulnerable to creditors, who blitz campuses, wooing them with gifts and incentives tied to credit cards and other financial contracts.
"They are so pressured to spend today and, often, having not been to the future yet, they lack the appreciation for the tradeoffs they're making," Mr. Rabbior says.
That's where parents come in. Everyone wants their children to be responsible with money, but many parents don't know how to ensure it happens. A recent survey by the Canadian Institute of Chartered Accountants shows that of the 78 per cent of Canadian parents who have attempted to teach their children money-management skills, 60 per cent believe they have not been very successful.
The key, says Mr. Rabbior, is to talk openly about money and to do it early and regularly. Show your children how money affects your everyday life - when you go to the bank, when you make a big purchase, when you renew your mortgage - and encourage them to ask questions, he says.
"This is one area where kids often won't ask questions, and if you can get them asking here, who knows, you might get them asking anywhere."
Some of the key financial issues you should discuss with children are:
Get young children interested in saving by opening a bank account in their name and providing an allowance, with part of it going to their savings. As they get older, use an online savings calculator to show how compound interest works and explain that the younger they start to save, the more time those savings have to grow.
As soon as your children begin to make spending decisions, talk about how marketers use incentives to try to influence their tastes and decisions, and how they use points and rewards to encourage loyalty. Make sure your children are able to weigh the benefits of such rewards against the costs of purchasing the products.
3. Credit history
When your children get their first credit cards or loans, explain the importance of responsible borrowing. Talk about credit ratings and how your children can build up a good credit score by paying bills on time over several years.
4. Student debt
Long before it's time for your children to take out student loans, help them look for other ways to pay for their education, including part-time jobs. Research scholarships, grants and government programs through CanLearn.ca. And open a registered education savings plan, in which government grants and bonds can help your savings grow.
If your children are borrowing money, make sure they understand the associated costs and interest rates. Explain how they can reduce the costs of borrowing by paying their debts as quickly as possible, rather than simply making the minimum payments.
Explaining risk in terms of investing is a more difficult concept, but it's one financial area where youth are at an advantage because they have a longer time horizon to recoup any losses, Mr. Rabbior says.
"If you want your savings to build over time to be able to acquire some of the things you want to acquire later on, you will probably have to put them at somewhat greater risk in the hope of getting a higher return," he says.
If you're not confident about talking to your children about investing, take them to see your banker or adviser and have it explained by a pro.