Saving for the unexpected

It’s tough enough to get kids in the habit of saving money for a specific goal — let alone putting cash aside for a rainy day. As always, experience is the finest teacher.

As I’ve written before, I’m a big proponent of kids learning financial skills by actually managing their own money. We’re obviously not talking investment portfolios here, but giving your child some financial decision-making power over a weekly allowance, birthday/holiday gift money, tooth fairy payouts and so on can give them real-world lessons they are sure to remember.

The latest one that my son, Adam, learned is that it’s worthwhile to have an emergency fund. Now, what constitutes an “emergency” in the eyes of a 10-year-old isn’t even close to what a real emergency looks like, but bear with me.

Here’s what happened. Metroid, an older game that Adam had wanted for a while but couldn’t find, was suddenly available for download on the Nintendo eShop for $5. But he didn’t have $5. He had spent all his discretionary cash from his allowance because there wasn’t anything specific he was saving up for.

“How was I supposed to know that the eShop would have it now?” he protested. “Can’t you loan me the money?” No dice. We told him that this is precisely why he needs to keep some money in savings — you never know what unexpected expenses might lie ahead.

It was a difficult evening for all of us. (I won’t lie, there were harsh words — his and mine.) It would have been way easier for his Dad and me to just buy him the game or loan him the money and, in the past, we may have done so. But as he gets older we want him to take more responsibility for his actions. He chose to use up all his spending money (he still has some long-term savings in a bank account, but it’s not for spending) and so he had nothing left over for an “emergency.” In this case, the surprise expense was a want, rather than a need. But, that’s okay. I think the lesson still got across.

As he gets older, we’ll expand the type of expenses he needs to cover so it’ll be even more important for him to have money socked away for those unwanted financial surprises. With these experiences (and a little luck), he’ll grow up to be among the nearly two-thirds (64 per cent) of Canadians who have a fund for financial emergencies, according to a recent Harris poll of 1,024 Canadian adults conducted on behalf of CPA Canada. Better yet, I hope he’ll be like the three-quarters (73 per cent) of emergency fund holders who have enough stashed away to cover at least three months of expenses, and the 68 per cent who say they’ve never used their emergency fund.

Better to have it and never need it, than the other way around.

Keep the conversation going

Do you have an emergency fund?  Post a comment below.


The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Tamar Satov

Managing Editor, CPA magazine
Tamar is a journalist specializing in business, parenting and personal finance. She blogs regularly in this space with advice and anecdotes on her efforts to raise a money-smart kid.