Money management isn’t always easy but teaching it to our kids can be just as difficult. But if they grow up without a proper understanding of their finances it can create a gap in their life skills.
Although some schools do teach the basics of financial literacy, we can still have an impact on our kids’ understanding of money. Talking about finances and finding teachable moments can give them the leg up that may make all the difference in their lives.
Licensed Insolvency Trustee, Derek Chase, shares his thoughts about how to better prepare our kids for their financial future. He covers the following topics and more:
- When is the right time to start
- The practically of handling their own money
- Teaching the different acronyms and explaining their functions
- Advantages and eventual outcomes of starting to save early
- The cost of holding debt and not filing taxes
- Resources such as The Wealthy Barber
Licensed Insolvency Trustees are considered some of the best financial advisors in the country and the only ones licensed by the federal government of Canada. With their knowledge and expertise you can be assured they will give you the best unbiased advice.
Read the Transcript
Wayne Kay 00:04
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.
I’m Wayne Kay. Today we’re going to be discussing financial literacy in school. Wouldn’t that be a dream? How many times have you heard, oh, I just wish I’d learned this younger, I wish I’d learned this when I was in school. This would be so helpful.
So when’s the right time to teach kids about money? That’s our discussion today. And I’m joined by Derek Chase from Derek L Chase & Associates Ltd. Licensed Insolvency Trustee serving Vancouver Island Sunshine Coast and the BC North Coast. Derek, thanks for being here.
Derek L. Chase 00:45
Thank you, Wayne. It’s a pleasure. Looking forward to it.
Wayne Kay 00:47
Well, this is a great discussion because as I mentioned in the introduction, everybody wishes they’d learn about financial literacy a little earlier in life.
Derek L. Chase 00:56
It’s true. I hear that quite often about people saying that they wish they had better training or earlier exposure to financial matters, and for whatever reason, it just doesn’t seem to happen, and then people end up paying for it later in life.
Wayne Kay 01:12
Do you ever wonder why they don’t just simply put together some kind of a class in the school system to teach us about money?
Derek L. Chase 01:20
I think that has become a lot more prevalent over the last number of years here than it was, say, 20 years ago. But I think really the problem, in my view, is that it’s just not relevant to the kids.
It’s almost abstract when you’re learning about some of these concepts. If you’re a young high schooler, say it doesn’t stick, and because it doesn’t stick. They don’t carry that forward into the future. But I do think it is worked into maybe not a specific course on the topic, but as part of some other courses that are trying to prepare kids for the future.
So all the school system can do is try. And I think if parents just leave it to the school system, then it’s unlikely that that training is going to stick.
I think it really needs to be combined with what the child or teenager might be learning from their home life as well. And when those two things combine, I think it can produce a good outcome.
Wayne Kay 02:27
So it might take both, but I guess where do we learn about money when we go back historically? Did your folks talk to you about money?
Derek L. Chase 02:36
I don’t think so specifically, but it just sort of came out as a general attitude towards money. Like it was something that was discussed in general, but there wasn’t any specific training.
So sometimes I think it’s a topic that it’s not talked about at all in a household setting, but it does need to come out in some fashion or another in order for it to stick or be incorporated into a person’s life in a positive way. If money is always a bad thing, if money is always controversial, or problematic or something that’s argued about then I could see a person shying away from that and not wanting to talk about it or learn about it.
But in contrast, when it’s either just generally talked about in a positive manner or actually specifically taught, then it can be a more positive topic and something that a person embraces and wants to learn more about and continues that over their life. It’s not something to fear but something to continually learn about different aspects of handling and dealing with.
Wayne Kay 03:58
So when’s the right time for us to start talking to our kids about money?
Derek L. Chase 04:03
Well, I don’t know if there is a specific time that you can say on the 16th birthday or whatever, but I would favor sooner rather than later and just sort of bring it up whenever possible.
I think a young teenager would probably be a good time to start just commenting about different aspects of money. Then as that young teenager progresses, you actually start getting them to handle some money and make some choices.
I always kind of chuckle at the comment of the parent asking the teenager, where does money come from? And the teenager says it comes from the ATM. They have no concept of money. It’s just a piece of plastic which is a credit card or a debit card.
So to actually get a young person practically handling some amount of funds and making choices surrounding that is good. I also think it’s good when you become a teenager to start learning about some of these different acronyms or labels that are describing different aspects of our financial system because that’s another thing that you can kind of just gloss over and tune out from.
What is an exchange traded fund? What is an RSP? Just some of these basic terms. They’re not really that complicated and if you take a bit of time to learn about it or explain about it, then I think it’s an easy concept for a young person to understand.
Wayne Kay 05:41
They might actually get it better than a lot of parents. I mean, the word ETF scares people. They don’t even know what it is, but yet there’s nothing to fear.
Derek L. Chase 05:50
Yeah, that’s true and I think you saw that a lot during the pandemic where there were a lot of people rushing into some of the investment products and benefiting because the market initially went way down and way back up. There were a lot of younger folks speculating in that.
But it really is a lifelong process and if you can start introducing that to kids in those early teenage years and then reinforcing that in their later teenage years. A lot of them will just naturally gravitate to it and find it very interesting and continue to read and learn and listen to the topic. And others will at least have the basics about the concept of running life after you leave high school and all of a sudden, you’re forced to start making housing choices and budget choices around where you spend your money. I think it’s possible for everyone.
I tell people, you don’t need a PhD in finance to have a working understanding of financial literacy. So that combination of learning it in school but also having it as a topic in the household that’s not taboo is very important, I think.
Wayne Kay 07:10
Well, it was something we talked to our kids a lot about money, and I’m sure you did as well, because I want them to be way further ahead than I was.
My family was more about, just go have fun, don’t worry about it. You’ll be working for the rest of your life, so just go have fun. You don’t need to know about all this stuff.
It was like I was sent into the world with blinders on. And so when it came to my kids and they learned about it really quickly, we didn’t do the allowance thing.
You want a cell phone? Great. What job do you want to do? Where are you going to get some work? And they learn to work and learn to pay for their own stuff like a cell phone because dad wasn’t going to pay for it.
Derek L. Chase 07:53
Yes, and they’re better off for it, I think. But as anything in life, there’s a balance. You wouldn’t want to have someone have a life long experience of never spending a dollar, never really enjoying life.
So there is that concept of having that life enjoyment. But also the practicality of not running out of money and building some savings. So as in anything, there’s extremes on each side of that.
Wayne Kay 08:21
What did you do for your kids? I’ll start with that question.
Derek L. Chase 08:25
Well, for our kids, it was something that we talked about. We talked about balancing the budget, about what things cost versus what we were able to afford. And then I can’t really put a specific date or time in their young adult lives.
But it’s something that we were talking about just the other day, talking about the costs of rentals and how they’ve changed dramatically over the last couple of years. What you might have to charge as a landlord in order to get some type of recovery on the purchase price of a rental unit.
And just different topics that come up from time to time explaining what might be a good exchange traded fund or the cost of administrating that versus the cost of administrating, a mutual fund that has a higher management fee, and what that does to an investment over time.
These aren’t really difficult once you put them out there. It’s just sort of an ongoing thing. It’s not the only thing we talk about, but it’s something that comes up from time to time.
And if I could have the listeners take one thing away or maybe two things away – it’d be, don’t be afraid to talk about it and read about it and start early, especially even if you’re just going to have a long range goal of accumulating some funds for retirement. If you’re starting at 23, you’ve got a long roadway in front of you, and if you did something very small, you’d be in an excellent spot in 20 or 30 years.
Wayne Kay 10:15
With our kids, we were lucky enough to teach them that, okay, you want to go to school? That’s going to cost. We need to figure out how you’re going to save money for that.
They had jobs. Well, one was a lifeguard, and that money just went into savings. But then he also did lawn care for cash for neighbors, and so that was his spending money and he did great. He always had cash on him.
So my kids both had to learn that they’re going to pay for their first year of schooling. And then Mum and Dad, we didn’t tell them at the time we would take care of the rest with those education funds that we put away, but they learned to save.
And also, there was one thing that I saw that I absolutely loved, and I don’t know where I saw it, but I know you know this. If you can put away like $2,000 a year from 18,19, 20, 21, 22, 23, 24 years old – put together $12,000. I think if you put that into your retirement fund, it grows to just such a huge amount. And so we kind of tried to get them to set that up, which luckily they did. We showed them the calculators and how that all worked.
And so now they’re doing great, but they follow, they get spreadsheets for every little saving thing they want to do. They’re way beyond me now. It’s great.
Derek L. Chase 11:34
Yes. I’m familiar with that calculation that you mentioned, and it is stunning how much of a difference that makes as compared to waiting until you’re 50 something to start saving. And even if you started saving a pretty darn big amount when you were in your fifties, the person that started out with that 2,000 a month in their 20s is miles ahead.
Wayne Kay 11:58
Derek L. Chase 11:58
And very difficult to catch. So it’s, it’s well worth it to, to put some discussion and thought into that whole concept.
Wayne Kay 12:06
And we should say $2000 a year. I hope that’s not in a month.
What better jobs do these kids have for two grand? Yeah, but when you put it into paper, you can actually show them some of the different results. I mean, I kicked myself that I didn’t follow The Wealthy Barber back when I was 20, when somebody first gave me that book.
Derek L. Chase 12:32
Yes, that’s a classic. And it’s still relevant today.
It’s well written and it would be a good basic book for anyone to read. We recommend it and it introduces people to a lot of different topics and terminology such that you’re more prepared when you’re talking with an investment person. You’re not sort of intimidated by some of the terms they might say. And even if you just did it yourself, it’s a good foundation to have. So it’s a Canadian book. You can find it in the public library. Go for it.
Wayne Kay 13:07
Yes, absolutely. Okay. You have a lot of people coming into the office, they’re in financial trouble. What are some of the main things that you wish, or they wish that they’d known before they got into financial trouble?
Derek L. Chase 13:20
I think probably one of the main things would be the cost of holding certain debt products, the cost of leaving, just understanding how difficult high interest can be. I think that’s one that people aren’t really aware of right off the bat. So they’re not necessarily looking for the lowest interest rate product to borrow on; they’ll just get whatever’s in front of them or easiest.
And that can often lead to paying some very high interest rates, which basically you can never catch. A lot of people don’t realize on the income tax side of things how punitive the interest cost and penalties are when you start not filing or not paying on your taxes.
That’s also very surprising for people. So I suppose the cost of debt on the interest rate side is something that people wish they would have realized earlier or known about earlier. That comes up a fair bit.
Wayne Kay 14:24
Okay, and is there one more?
Derek L. Chase 14:27
One more that people wish they knew?
Wayne Kay 14:29
Is there something else? One more thing that people, after you’ve done your credit counseling with them, they go, Jeez, this is awesome. I wish I had known this earlier.
Derek L. Chase 14:38
I suppose when we show them some numbers in regards to how powerful savings can be, even with relatively small amounts of money. So many times I think savings plans collapse that have the best intentions just because they’ve chosen too high of an amount to try and save or invest each month. And then it can’t continue because life interrupts.
But even if you were doing something that’s so small you think is never going to make a difference, if you consistently do that, then there’s some very healthy progress made there. So saving something per month doesn’t matter what the amount is. Just when we show people those numbers, they’re like, oh, my gosh, I wish I’d have got going on this ten years ago sort of thing.
Wayne Kay 15:33
Absolutely. Final words of advice, Derek, regarding literacy for our young people.
Derek L. Chase 15:40
Well, financial literacy, I think, is a combination of both learning it in school and also learning it at home. Certainly nothing to be afraid of. So dive in, read whatever you can and talk about it, and before you know it, you’ll be on your way.
Wayne Kay 15:55
Well, right on, Derek. I think that’s a perfect place to wrap things up for today.
Thank you very much for being on the show today. It’s always a pleasure.
Derek L. Chase 16:03
Thanks very much Wayne.
Wayne Kay 16:04
My guest today, Derek Chase. You can learn more or schedule a free consultation with Derek L Chase & Associates Ltd. Licensed Insolvency Trustee by going to the website bankruptcytrusteebc.ca.
That’s bankruptcytrusteebc.ca. And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from and of course for more information you can always check out debtmatters.ca. Thanks for listening.
About Derek Chase
Derek Chase is a Licensed Insolvency Trustee in British Columbia. He has been helping individuals and corporations restructure their debt since 1997. His areas of practice include personal and corporate insolvency including Consumer Proposals and Bankruptcy. The best part of his work is to be able to witness lives change for the better when the heavy burden of unmanageable debt is lifted.