Parents are always looking for signs that the kids have the tools to succeed in life. That they’re moving in the right direction. That they can take care of themselves.
When it comes to financial understanding and money management, there’s plenty to worry about. Ontario students continue to struggle with math, the latest provincial standardized tests show. Their parents aren’t doing so well either. The ratio of household debt to disposable income approached a record this spring. It may make you wonder whether you’ve been a good teacher.
Here are five signs that indicate your kids are heading in the right direction.
They pass the Marshmallow Test: This experiment from the 1960s was all about impulse control. Four-year-olds were left in a room with a single marshmallow on the table. If they could hold off and not eat it, they’d get two at the end of the test.
Some waited less than a minute, others held out. The psychologist who did the study followed the kids into their 40s and found the longer they delayed their gratification when they were four, the better they did in later life.
If your kids can save now to spend later, they’re well on their way. It could be an allowance, birthday money, or cash from a part-time job.
“Saving requires an ability to push off immediate reward for future benefit,” says Avidan Milevsky, a psychology professor at the University of Pennsylvania. “Children and teens with an ability to delay gratification are more likely to grow up financially successful.”
They get the big picture: Are they curious and ask questions? Is there an ability to step back and see what doors open and close by making today’s choice?
Cindy Crean, a senior wealth manager with Sun Life Global Investments, says subtle signs a bigger picture is missing are spending on impulse, lacking motivation to get a part-time job and relying on handouts from parents.
Frank Wiginton, a financial planner and author of How to Eat an Elephant, says asking questions about money matters is important because it shows the young person is interested in the financial goal and wants to know how to get there sooner.
They’re organized: We’re not talking about a clean room, although that would be nice, but the ability to figure out the steps to achieving a goal whether big purchases, trips, a new computer, or smartphone.
“Financial success is closely linked to being able to budget, which requires organization,” says Moshe Milevsky, Avidan Milevsky’s brother. Milevsky has taught finance to undergraduates and graduates at York University for 20 years.
“Scattered and haphazard undergraduate kids have a tough time doing that,” he says.
They see how math helps: Personal finance is about simple math. Some kids bail out of math in high school because they’re afraid of it, or find it difficult and disconnected from real life. Solving quadratic equations doesn’t help you understand credit card interest or tell you which phone plan is a better deal.
But closing the math door, cuts off an understanding of an important life skill. It doesn’t mean arts students can’t succeed; just that they’re less exposed to the fundamentals and may be less comfortable with the concepts.
Not everyone agrees. Patricia White, executive director of Credit Counselling Canada, isn’t sure the arts-math divide is so cut and dried.
“My kids are adults and one was excellent in math. But they both understood the concept of saving,” she says. “My daughter who was not good with math uses a spreadsheet to track her spending and has a budget for everything. My son is also good with money but not necessarily because of the math.”
You lead by example: Your kids know if you struggle to pay the bills, can’t seem to save anything and are always scrambling to make ends meet. If your line of credit keeps you afloat and you pay for everything with a credit card, they know that too.
On the other hand, if you only spend what you can afford and have money for emergencies, you send a different message, says Chris Buttigieg, a senior wealth planning manager with BMO Financial Group.
Talking about investments and exploring the pros, cons and costs of various household expenses also helps create awareness and create interest in financial decisions.
In the end, financial literacy creates the skills that help young people make responsible financial decisions with confidence.
It involves a little math that goes a long way.