Little girl withdrawing money form ATM with help of mother.

Some time back I had written about how we could better prepare children to handle money responsibly, how to help establish good financial habits and why that was important. You might have thought that banks would have played a role in that education, but I failed to talk about them and what positive (and negative) aspects they can play when it comes to a child’s money intelligence.

In theory banks should be the obvious first stop when it comes to talking about money and yet they rarely are. They may not even be helpful. This is partly because banks have long since given up being a waystation for protecting money from the general economy. While banks themselves have always had a central part to play in lending and growing the economy, the roll of doing that off the back of people who are housing their savings for a rainy day has been replaced by the desire to more quickly facilitate economic activity. Whereas banks were once a speedbump on the road to making a purchase, today they occupy the chief role of facilitating that purchase. No one would dare deposit money with a bank that did not provide debit cards, credit cards and easy online financial transactions.

Being money smart though has a lot more to do with instilling patience and setting goals, not immediately reacting to every consumer temptation. But a teenager with a bank account is not going to find that he or she is hindered much by their savings account. Furthermore, they are unlikely to see the benefits of keeping money in a savings account since there is little growth to be offered. This gives banks a paradoxical role in your child’s financial education, one that offers little incentive to save while facilitating bad financial choices.

For instance, TD Bank offers a Youth Account, a basic savings account for children up to the age of 18. There’s no fees, unlimited transactions per month and minimal interest rates for savers at 0.05%, or 50₡ for every $100. However, a child of 12 will receive a debit card with the Visa Debit system and a daily limit of $25 or $50/day. Meanwhile Scotiabank’s Getting There Savings Account offers similar low fees and minimal interest, but throws in 2 free Interac transactions per month and Scene Reward Points for the movies. The lesson banks teach kids is that putting money in the bank helps buy things they want whenever they want it.

For parents who opened an account for their children when they were small it may be a surprise that banks will send teens and pre-teens bank cards. And even approaching a bank about what can and cannot be done with a bank card may not offer up much help. I went to three separate banks to ask about their youth accounts and was frequently met with several “umms” and “ahhs” when I pressed for details. At one bank I was assured that even though the bank card was a “Visa Debit” that card could not be used to buy items online (which is what the Visa Debit system does). When I pressed for confirmation that this was the case the person disappeared to consult with other employees before returning and confirming that online purchases would be allowed. Financial limits are also not particularly inspiring. A $25 limit per day totals pretty quickly, and parents may not realize what that money is going towards since online purchases can be easily overlooked.

And yet.

This is also the system that we live in. Children should be raised to understand that there will be few breaks when it comes to making bad financial choices. Banks and credit card companies will happily provide debt to those who can barely afford it and defend themselves with impenetrable multi-page legal documents. Engaging with this system is essential to beating it.

So what can parents do?

As I wrote back in 2015 the best course of action is to do planning with kids to help establish good habits. Giving kids an allowance in exchange for chores isn’t a bad idea, but it might make more sense to both expand the money that is given, and then set up automatic withdrawals to cover expenses. Rather than receive $20/week as an allowance, consider $50/week and automatically take $30 back for RESP contributions. Or up it even further and charge them room and board. The experience of seeing financial responsibilities coming ahead financial luxury would establish a good habit of the real costs of living.

Another idea would be to sit and plan the purchase of a large item together that a child wants. Maybe it’s a video game system or a subscription of some kind. Go through the budgeting process together and figure out how many weeks it would take to get the item while also factoring money in that time for usual expenses like eating out with friends and going to movies (people still go to the movies right?). Invariably good budgeting forces us to question what we’re doing and whether it makes sense, so the action of picking an item and working towards it will go a long way to either validating those wants or rethinking what to do with that cash.

If you can convince your child to save and budget, help them as well consider alternative things to do when it comes time and they’re tempted to spend the money they were meant to be saving. Budgeting should help provide a passage to success and being left home alone while their friends are out having a good time will be hard.

Lastly, take your kids to the bank and have a meeting with someone together about the ins and outs of their youth account. Parents should know what is and is not allowed and not assume that simply because they opened the account 8 or 9 years ago, they understand what that account does or does not allow.

Financial planning remains an unpopular pastime, and few enjoy the responsibility of dealing with money. This may have more to do with how out of control Canadians feel with regard to their expenses and how much debt we carry. But as parents we should be looking for every opportunity to teach our children some of the bitter truths about money, debt, banks and budgets. Nobody else is.

As always, if you have questions about fees, performance or your financial future, please don’t hesitate to give me a call or send a message.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared  by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

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