Month: October 2022

It probably seems like it was just yesterday that your teen was a squealing infant with toes the size of peas, and suddenly they’re a mini-adult with their own opinions and big dreams. You’re probably wondering how to help them make good choices now so they’re financially secure when they leave the nest. To start, give them these money management tips to help them avoid some of the biggest financial mistakes teens make. 

Key takeaways

Why is money management important for teens and youth?

You know the expression “Old habits die hard?” It applies to everything from diet and exercise to money management. A teen who develops lousy money habits (like blowing their full allowance or paycheque the instant they get it) may find it harder to live within their income, pay their bills on time, and save for the future when they become an adult.

That’s where you come in. You have the power to influence your teen’s ideas about money, credit, and debt and help teach them the skills they need to set themselves up for financial success. There are a few things you can do:   

• Set a positive example of how to manage your money by taking time to save up for bigger purchases, sticking to your list when grocery shopping, and paying your bills on time.
• Help your child practice key financial skills like budgeting, tracking spending, and saving.
• Teach them about some of the biggest money mistakes to avoid. 

What are the worst money mistakes youth often make?

Nobody’s perfect, but some of the biggest money mistakes that youth and teens make might be avoided with a little education and planning. Here are 10 of the most common financial blunders teens make as they start to gain independence—and how you can help them do better: 

1. Not learning how to budget

The time to teach your child about budgeting is ASAP so that by the time it becomes a crucial skill for juggling the costs of food, rent, car insurance, and more, it will already feel like second nature for your newly independent young adult.

This guide to budgeting for teens can help you and your child develop a basic budget and discover the tools to help them stick to it.

Learn more: What is zero-based budgeting? A guide for parents and teens.

2. Not saving for the future

Along with budgeting, saving is one of the most important aspects of good money management for youth—and failure to save is one of the worst money mistakes a young person can make. In adulthood, squirrelling away money for emergencies (e.g., job loss, car repairs, dental bills) and retirement is fundamental for financial security. Teens can practise by saving for a new computer or a graduation trip so that delaying gratification becomes a habit.

Learn more: Emergency funds explained for teens

And if they’re feeling really ambitious, they can even put a portion of their allowance or paycheque into an RRSP. The big perk of starting to save for retirement early is a little thing called compound interest. The longer an RRSP has to grow, the bigger that nest egg will be when it comes time for them to retire.

This primer on interest rates offers a great first look at simple and compound interest as well as tips on finding a good interest rate. 

3. Buying too many things they want rather than need

Throughout the day, friends, influencers, and advertisers bombard teens on social media with everything from lip gloss to headphones, and it can be hard for them to say no when trends change weekly. But always caving in to consumer pressure is one of the worst money mistakes anyone can make. Very quickly, your teen will have no funds left to pay for the things they actually need.

Needs and wants can sometimes feel like the same thing. (You’ve probably heard your child whine “But I need it!” at least once when begging for a new toy, gadget, or piece of clothing.) This needs vs. wants explainer can help you teach your kid the difference. 

Learn more: How to help kids and teens avoid impulse buying.

4. Getting a credit card too early

In Canada, your teen won’t be able to apply for a credit card until they reach the age of majority in their province (either 18 or 19). However, they may be eligible to be an authorized user on your credit card from a younger age. In that case, any late payments or outstanding balances will impact your credit history as the main cardholder.

But should a teen get their own credit card as soon as they reach the age of majority? It depends on the individual. While building credit from a young age makes sense, having a credit card is also a big responsibility. If your teen has no source of income or struggles with money management (meaning they tend to overspend or are likely to only make the minimum payments), then they may end up paying more for everything they buy, accumulating debt, and developing poor credit.

This credit card primer can help you decide if it’s time for your teen to get a credit card or become an authorized user on your account. Meanwhile, Mydoh’s Smart Cash Card is a risk-free way to test out your teen’s ability to manage their money. 

Read more: How to apply for your first credit card.

5. Getting an expensive car loan

A fancy car with all the bells and whistles may feel like the perfect purchase for a teen looking forward to their first set of wheels, but it could also become a burden. Unless your teen has saved a large sum, or you’re willing to pay the purchase price or car payments for them (not to mention insurance, gas, repairs, and everyday maintenance), they could end up with a large monthly expense and no way to pay it.

To cut down on costs, riding public transit or cycling may be good alternatives to car ownership if there are viable options where you live. Purchasing a second-hand car that won’t rack up huge loans may be another smart option. These tips for buying a first car can help.

6. Going deep into debt for college or university

For many teens, getting a university education is a big part of their post–high school plans. And while additional schooling can be one way to create more job opportunities in the future, it can also put a strain on anyone who’s not financially prepared. Many Canadian students rack up loans in the tens of thousands of dollars, and they’re tasked with paying off that debt just as they’re starting to break into the job market.

Even if you plan on helping them out with tuition, these tips can help minimize the amount they’ll owe after graduation:

• Apply for grants, scholarships, and bursaries.
• Choose a school that’s close to family so rent-free living is an option.
• Work a part-time job in high school and save money for expenses like tuition, books, transportation, and food.
• Don’t automatically accept any loan amount that’s offered. It’s smarter to take only what’s needed based on an estimated monthly budget.

Discover more tips for paying for post-secondary education. 

7. Spending more than they earn

When there’s a new makeup launch or concert every week, your teen may be tempted to borrow money, rack up a bunch of purchases, and think about paying it back another day. But a good rule of thumb for teens (and anyone else hoping to develop a good financial track record) is to monitor spending and stick within their earning limits. If your teen wants to spend more than they currently earn through their allowance or work, then they’ll need to pick up more hours or find odd jobs to make up the difference.

Struggling to explain the concept of debt to your kid? This guide to debt for parents and teens keeps it simple. 

8. Making risky investments

Digital assets like cryptocurrency, NFTS, and meme stocks might seem like the next big thing in investing, but they’re also unpredictable and can fluctuate by huge amounts in no time at all. For someone who’s new to investing or who craves financial security, they’re generally considered a risky choice. (They may pay off one day, but no one knows for sure.)

If a teen wants to experiment with a small amount of money to learn more about the future of financial platforms, blockchain, and investing in general, that’s great! But you know what’s not a good idea? Gambling hard-earned money that they can’t afford to lose.

These guides can help you and your teen get a better grasp on the world of cryptocurrency and NFTs. 

9. Trusting friends, partners, and roommates with their money

When your child was young, you probably told them that “sharing is caring” and encouraged them to be generous with their toys. But now that they’re a bit older and have started to earn some money, set budgets, and save for the future, being too generous is one of those classic money mistakes to avoid. Encourage your teen to be careful as they navigate some of these potential pitfalls now or in the future:

• Loaning money: Loaning large sums of money to friends could be risky and may negatively affect the friendship if the money isn’t repaid on time—or ever.
• Sharing a bank account: It may be tempting to create a shared bank account with a romantic partner, but teens and adults alike should avoid pooling funds unless they’ve had honest talks about financial goals and habits and are confident that both they and their partner are committed to a long-term relationship.
• Choosing roommates: Having a roommate or two makes the burden of rent easier to manage, but encourage your teen to choose wisely! Someone who can be trusted to pay their bills and take care of the space is a way better choice than a party animal who will trash the apartment, run off to Europe with no notice, or refuse to budget and as a result be unable to afford their portion of the rent. 

10. Expecting parents to clean up their mess

While you may want to protect your kid from any trouble that comes their way, forever bailing them out after their worst money mistakes will actually do more harm than good. You can still teach them good financial habits and be a sounding board if they’re struggling to keep up with their bills, but let them be independent by resisting the urge to always fix everything for them. They’ll learn that they can curb spending, stick to a budget, and work hard to reach financial success—and that they don’t need Mom’s or Dad’s money to do it. 

How to help your teen avoid the worst money mistakes

If you’re looking for ways to teach your kid the value of money, plus how to budget, save, and manage credit, there are a few things you can do:

• Encourage them to track every dime they spend. The Mydoh app allows them to check their earnings and spending right on their phone.
• Use the Should I But It? Quiz to help teens calculate their cost-per-use before buying a big ticket item.
• Help them develop a budget based on how much they earn and what they hope to buy. Choose a percentage—whether five, 10, or 20 per cent—that will go directly into a savings account.
• Have them pay their own phone bill each month to practise their budgeting skills and learn how to stick to deadlines.
• Next time they want something they can’t afford, don’t just buy it for them. Have them complete tasks—from doing the dishes to mowing the lawn—to earn an amount that you set.
• Sign your teens up for a practice trading account and try online investing without using real money before plunging their cash into the latest type of cryptocurrency. 
• Before signing your teen up for a credit card or adding them onto your card as an authorized user, have them practice with the Mydoh Smart Cash Card. They can use it like a credit card (except there’s no interest, debt, or credit score impact).   

The bottom line

One day, your teen will be solely responsible for their own financial well-being. For now, you can help them learn good habits and urge them to avoid the worst money mistakes that teens can make. By helping your child practise the staples of good money management, including budgeting, saving, and investing, as well as teaching them realistic ideas about financial responsibility, debt, and credit, you can set them on the path to a money-smart life. Mydoh is here to help.       

Download Mydoh and help build the foundation of financial literacy for your kids and teenagers.

Money can sometimes be a source of stress and self-doubt for many of us. And families are already feeling stressed from rising costs due to inflation and an uncertain economic future. That’s why Mydoh wanted to take a pulse check on how Canadian parents feel about money and what they hope to teach their kids about financial literacy. 

Curious to know how parents really feel about money? Mydoh commissioned Ledger to conduct an online survey of 1,500 parents of kids aged 6-18 across Canada, except for Quebec. Here’s what they had to say. 

 2022 financial literacy survey key findings

• 54% of Canadian parents felt like their parents weren’t proactive enough in teaching them about money and budgeting
• 46% of parents felt they had to unlearn unhealthy financial habits 
• 68% of parents wished their own parents had taught them more about managing finances
• 49% of parents find their kids are more curious and motivated to learn about money than they were at that age
• 88% of parents believe that paying for chores teaches kids important lessons about money, particularly around earning it. 

Mydoh financial literacy survey results 

“Money carries a lot of stress for Canadians—women and people of colour particularly—and from the survey, we’re seeing that stressors can be passed down through the generations, sometimes unintentionally,” said Sammer Haq, who is Head of Data and Analytics at Mydoh, and Founder and Executive Director at BridgeTO Youth.

Here are some specific findings from the survey and how parents can give their kids the tools they need to learn real-world money skills: 

Parents could be more proactive teaching money management

We learn a lot from our parents: how to ride a bike, how to tie our shoelaces, and how to share with others (even when we don’t want to). Another thing kids learn from their parents is how to manage their money. Mydoh’s survey revealed that more than one in two parents felt like their parents weren’t proactive enough in teaching them about money management. Further, parents who identified as a person of colour felt these gaps in financial literacy to a greater degree. 

How parents can give their kids a head start on money management 

While your parents may not have taught you the budgeting and money skills you wished they had, there’s still time for you to ensure the next generation is equipped to learn about personal finance and apply those skills in their own lives. 

Parents can start by introducing money basics, including the concept of financial literacy. But let’s face it, teaching kids about something like financial literacy can be intimidating. Start by tackling these five key components of financial literacy:

1. Earning money

Kids and teens will more easily grasp the idea of money when it’s up to them to earn their own. Getting an allowance or a first part-time job helps kids and teens develop an understanding of the value associated with money and what it takes to earn it. 

2. Spending cash

Kick-start your kid’s financial education by helping them create a personal budget, which helps give them control over how they spend their money and track their expenses. 

3. Saving and investing

Teens can grasp the importance of saving money and planning for short- and long-term goals. While most investment products require you to be the age of majority, kids and teens can boost their financial literacy by opening a free practice investment portfolio to help them learn about income growth.

4. Borrowing money

Help your kids stay out of a bad debt cycle by teaching them about borrowing before they get their first credit card.

5. Protecting themselves

It’s true that most kids are more tech-savvy than their parents, but teens may not yet have the experience to deal with identity theft or online scams. Talk to your kids about online privacy and security, and why it’s important to not share personal information with others online. 

Read more about 8 reasons to teach kids financial literacy to kids & teens. 

Parents need to unlearn their unhealthy financial habits

Another area where generational influences have impacted Canadians is in relation to financial habits, with 46 per cent of parents saying they felt they needed to unlearn their unhealthy financial habits—like not having a budget, not saving a set amount each month, or going into debt.

How parents can teach and learn better financial habits

Building good habits takes time and energy (James Clear has written an entire book about habits, and shares some tips here about creating good habits). So breaking the cycle of unhealthy habits won’t necessarily happen overnight. But as parents make changes to their money habits they can also teach their kids healthier ways of managing their money. Here are a few places to start:

1. Wants vs. needs

Understanding wants vs. needs means that kids and teens can assess whether their spending choices are must-haves or nice-to-haves and be better positioned to avoid debt. 

2. Learning to budget

Like other skills, getting smart with money and learning about budgets and expenses takes practice, and practice takes time. One simple way to do this is use the 50/30/20 budgeting rule. That means kids put aside 50 per cent of their income (or allowance) towards needs, 30 per cent towards wants, and save 20 per cent. 

Read more: What is a zero-based budget? A guide for parents and teens.

3. Paying off debt 

Being in debt often teaches your teen how ignoring a problem will only make it worse. If your teen finds themselves in debt, there are two common strategies to pay it off. The first is the “debt avalanche” method where they focus on paying off the highest interest debts first. The “debt snowball” method works by tackling the smallest debts first and having that momentum carry them forward to pay down more. 

Read more: How to pay off debt fast. 

Money should be openly talked about as a family

Some bright news from the survey was that 70 per cent of parents believe that money should be openly talked about as a family. And almost half of the parents we surveyed found their kids were more curious and motivated to learn about money than they were at the same age. 

How parents can motivate their kids to learn about money

Here are some ways parents can help motivate their kids to learn about money—from making it to saving it:

1. Gamify your savings

Gamification is one way kids and teens can begin to save money without it feeling like a chore. Setting up a savings ladder and checking off the rungs along the way, creating an envelope challenge, or some friendly competition to meet your savings goal faster are just a few ways teens can gamify their savings. 

2. Encourage kids and teens to start their own business

Some kids and teens are natural entrepreneurs. So if your teen has a brilliant business idea to start baking cakes, become a dog walker, or sell vintage clothing online, encourage them to explore their passions and earn their own money. 

Read more: How to make money as a kid online.

3. Understand how interest works

While understanding interest is important when it comes to investing, it’s just as—if not more—important for teens to understand how interest works when borrowing money. Chances are high that in your kids’ lives they will take out a car loan, apply for a credit card, or even take on a mortgage. That’s why they should learn the difference between APR and amortization, or how much that personal loan is really going to cost them in interest. 

Chores and allowance can teach kids valuable lessons about money

Our survey showed that most parents agree: allowance-based activities, like chores, teach kids important lessons about money. They know that talking about money isn’t enough; you’ve to walk the walk. And assigning chores and providing an allowance is usually a kids’ first taste of work. While paying kids household chores isn’t new, having a digital tool like Mydoh can be a great help in getting kids and teens to be proactive about their household responsibilities. 

How parents can think of chores the right way

Here are some other things parents might want to consider:

1. What type of allowance should you give? 

Earning an allowance is a rite of passage for many kids. But not all allowances are the same. Should you pay your kids and teens a pure allowance (aka no strings attached), a chore-based allowance, or a hybrid of the two? 

2. Chores help teach life skills

While getting help with unloading the dishwasher is reward enough for assigning chores, there are also some beneficial life skills that they’ll learn in the process. Soft skills like time management, problem solving (how do you operate a washing machine?!), and work ethic could help them when they join the workforce. While cooking and home maintenance are invaluable when they’re living on their own. 

3. Kids with disabilities benefit from chores too

Not every kid has the same abilities. But parents can support their kids and teens who do have a disability in successfully taking on household chores. Sometimes, special consideration should be taken when adding chores to the daily or weekly routine of children with disabilities. Consider factors such as breaking down each step of the process, being consistent and generous with your praise, and finding what motivates your child. 

Want to learn more? Download our free eBook Parents’ Guide to Getting Your Kids to Do Chores.

Basic money management is a main skill parents want their kids to learn

Our survey found that 90 per cent of Canadian parents surveyed rank basic money management as the main skill they hope their kids will learn. Clearly, raising money-smart kids and teens is important to Canadian parents.

How parents can teach their kids money management

“Whether it’s active learning, or having candid discussions in a grocery store, the goal for parents needs to be breaking the cycle,” says Angelique de Montbrun, who is Chief Marketing Officer at Mydoh and a parent of three. “Parents can do this by proactively planning, as a family, to build these healthy habits together.” 

Start with one conversation at a time. 

Download the Mydoh app to help your kids and teens build confidence to manage their money and grow to become financially independent.