When she was a two-year-old toddler, inquisitive Madison Farrell used to wonder why her parents didn't take full advantage of automated banking machines.
"Madison would say, 'You just get some out of the machine . . . It's always got money,' " recalls her father, Kerry Elfstrom.
Now that she's six, Madison has a better grasp of money matters.
Not only does she know a bank machine isn't an unlimited source of cash, she also knows how to use it. She gets savings bonds as birthday presents. She has an allowance, several piggybanks, and a savings account. She understands that because her dad put some of her money toward a guaranteed investment certificate, the sum will grow.
"[Children]don't know how to live if they don't know the cost of living," explains Mr. Elfstrom, the 59-year-old owner of a Vancouver consulting firm. After witnessing his two older children, now 27 and 22, struggle with money as young adults, he didn't want to wait until Madison was grown before teaching her financial responsibility.
"She could end up not earning enough money to live the same lifestyle she has become accustomed to at home. That could be devastating."
Like Mr. Elfstrom, increasing numbers of parents are teaching their children how to handle and save money at a younger age, says Gary Rabbior, president of the Toronto-based Canadian Foundation for Economic Education. It's an admirable effort, considering personal saving rates in Canada have reached all-time lows recently, currently hovering above zero.
Lessons on personal finance have yet to find a formal spot in the school curriculum in Canada, Mr. Rabbior notes, and that means it is up to parents to instill sensible spending habits in their children. "There are many parents who lack the understanding because they came through a system that didn't give them tools either," he adds.
As Julie Jaggernath, a co-ordinator with the Credit Counselling Society, puts it: "Our first paycheque didn't come with instructions -- it came with deductions."
Laurie Campbell, executive director of Credit Canada counselling service, believes parents owe it to their children to teach them how money works.
"Having no money can make life very stressful," Ms. Campbell says. "We need to ensure that we don't have another generation of young people starting out their lives in deep debt."
So when should you start talking about money with your children?
Experts suggest you begin when they're about four or five years old. The first step for parents should be to explain or describe any financial actions they take, from using a credit card, writing a cheque or doing comparison shopping.
"They develop their own ideas, they think money does grow on trees, they think mom and dad are an endless supply," Ms. Campbell says.
When it comes to an allowance, Mr. Rabbior believes that it should not be used as a reward or punishment if your goal is to teach financial responsibility. "They should be separate issues."
That also applies to household duties, Ms. Jaggernath says. "Some parents tie allowance to chores -- it sort of negates the allowance as a [financial]learning tool."
Setting up a bank account for your children should happen when they are about seven or eight, or "when they've taken an interest in shopping and they are getting better at math," she says.
Be sure, though, not to put too much emphasis on money itself when teaching your children about finances.
"There's a difference," Ms. Campbell notes, "between money matters and materialistic things."
Kids and money
Want to help your children learn about finances, but aren't sure where to start? Here are some sources of information: In person: Advisers in banks are an obvious choice; you can also find help through counsellors for non-for-profit credit organizations. In schools: More than 200,000 copies of the Canadian Foundation for Economic Education's "Money and Youth" resource guide have been sent out to schools across the country in the past four years. The primer, made with Investors Group, can also be found on-line ( http://www.cfee.org; click on "Shopping Basket")
Hit the books: Many books offer advice and tips for parents; one such is by Vancouver author Ann Douglas, Family Finance: The Essential Guide for Parents, in which parents share their stories and challenges of teaching kids how to save. If you can't find it at your bookstore, check on-line ( http://www.amazon.com). Ted and Lora Lea published When I Grow Up, I'm Going To Be a Millionaire: A Children's Guide to Mutual Funds in 2000 after they couldn't find reading material geared directly to kids. Since then, similar works have emerged but the illustrated book by the B.C. couple remains relevant. Find it on-line at http://www.trafford.com.
On-line information: Visit the "Youth matters" and "Teachers' corner" links of the Investor Education Fund website ( http://www.investored.ca); or the "schoolaged" section of the Canadian Parents site ( http://www.canadianparents.ca); and the "Parent Stuff" section of the Canadian Bankers Association site ( http://www.yourmoney.cba.ca).