Tax time is a wonderful opportunity to teach children about money, and financial concepts like spending and saving. Teachers on Call shares three great resoures to help your child get comfortable with money and math.
Though Financial Literacy Month in Canada is not until November, with tax time here, it’s still a great time to teach children about money, and financial concepts like spending and saving.
It’s okay if your child doesn’t fully understand all of the concepts. There will be many years to learn the finer points and flesh out understanding, as long as they grasp the core ideas.
Here are a few great resources and ideas to get kids comfortable with money – and math!
Explaining the parts of your pay stub
Really, their first job does not have to be the first time a student ever sees a pay stub and the deductions that happen on it. While it may be a new idea to share this much with your child – it’s really an excellent way to get them familiar with a lot of financial lingo. Every child will need to learn the difference between gross and net someday!
Even parents who are self-employed or doing contract work can participate in this activity, though they won’t necessarily have a pay stub to work with. But certainly, they can explain how they invoice clients, how they have to save a portion of funds to remit HST and pay income tax installments!
If your child is a little older, you can extend this activity into how it is related to paying income taxes itself, especially if you’re still getting your taxes together!
For more help on this, check out 1.2.1 Understanding your pay stub - Canada.ca
Saving a portion of allowance – for fun things now, and later for retirement
According to statistics, most young adults don’t start saving nearly early enough in life. This is unfortunate, because the earlier one starts saving, the easier it is to begin tucking away nest eggs. If you’ve contributed to your RRSP this year, now is a great time to show by example, explaining your savings strategy and the benefits that make it worthwhile. It’s okay if your child doesn’t understand everything about how it works yet, as long as they become comfortable with the idea of saving money for later and how it helps them.
Suggest your child begin to learn to specially save a portion from their own allowances – maybe 5 or 10% (a great way to get them to practice their fractions and percentages!). They don’t have to save it for retirement yet, but there’s very likely a large-purchase item or a fun activity too big for their regular allowance that they can start building towards!
Here’s some more info on allowances and saving: Giving children an allowance - Canada.ca
Tackling the idea of compound interest
A = P (1 + [r / n]) ^ nt
Does this look like a scary amount of math? Even many adults lack a great grasp of the power of compound interest. It affects so much of our finances that it’s one of the most important core concepts for a child around 12 or so to begin to understand (even though it will be longer to master). Why is compound interest so key? You can use it to great advantage – or misunderstanding it can land you in a world of debt. Credit cards, personal loans and mortgages, retirement savings, and other savings accounts and bonds use compound interest.
With younger children, it’s perfectly fine to start simple. Use the idea of a savings account with $1000 that earns 2% interest per year. At the end of year 1, you would have $1020. What would you have at the end of year 2? (Hint: It’s not $1040!)
Oh, and don’t forget to explain to your child how this concept relates to your RRSP savings and investments!
For more reading, check out What Is Compound Interest? – Forbes Advisor
Remember, it may take a while to understand and master these ideas, but it’s well worth the effort. These are complicated (but important!) math concepts that will serve your child for their entire working life. Happy tax season!
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