Can Your Kids Be Made Money-Smart?

Richie_Rich_comic_No_1By the time your kids get to university, do you think they will have the financial wherewithal to resist the siren song of credit card debt and wasteful money habits?

It’s a good question; when kids go off to school we expect them to finish growing into adulthood but from the standpoint of financial institutions they are already adults, ready to take on all the burdens of credit and predatory loan rates. This is regardless of how experienced they are when it comes to accepting financial responsibility and no doubt contributes to the average indebtedness of students leaving Canadian universities.

Companies are busy grooming kids to be little economic engines, buying on impulse and spending when they should be saving. Whether you agree that it is right or not, children today either directly or influence economic activity to the tune of $1.2 trillion, so don’t assume that we’re likely to see a change in how we advertise to kids. The most effective counter to the tidal wave of advertising and commercial temptation is to make your children money-smart as soon as possible.

Transparent Pig

What is money-smart? Well, think of all the financial decisions you make on behalf of your kids, and then consider how many times you don’t include your children in those decisions. RESPs, RRSPs, credit cards and bank accounts all represent opportunities to not simply teach about money, but create habits and routines around money and how it is used.

For instance, did you know that so long as a fifteen year old has a social insurance number and files a tax return they can have an RRSP? Crazy right! And yet given that most 15 and 16 year olds work in the summer there is no reason that they can not be introduced into the basics of long term savings, even if it is merely an early step.

The spending habits of teenagers. From Business Insider: http://www.businessinsider.com/how-teens-are-spending-money-2014-2014-10
The spending habits of teenagers. From Business Insider: http://www.businessinsider.com/how-teens-are-spending-money-2014-2014-10

Allowances too can serve as a useful tool, not simply in terms of introducing basic money management but also in budgeting and even early credit. Parents shouldn’t simply hand over the money and walk away, instead be part of every step of the financial story, from planning big purchases to paying bills. Family budgets can be a useful addition to the allowance as well. Most parents buy clothes for their kids well into early adulthood. But given how much importance kids put on clothes, both as a fashion choice and as an expression of individuality why not set up a clothing budget, giving children the opportunity to choose what they want and find the outer limits of how far money will go?

Some guidance around allowances

Money-Smart KidsGail Vaz-Oxlade, the prominent and popular Canadian money guru, has a book about this exact subject, and it is a short and useful read for adults looking for ideas on how to introduce the concept of money to children in practical and fun ways. I can’t recommend it enough as a clever way to get your kids ready for good fiscal health.

But we can all chip in. I leave my clients and readers with this open invitation: If we manage your children’s RESPs then invite them to the table! On average we see clients between 3 and 4 times a year in person, and over the course of reviewing their financial picture not once has anyone invited their teenager to join a regular review of the savings they will be employing for their higher education. We view this as an easy learning opportunity for soon-to-be students to get a better understanding of the RESP tax credit, the reasons behind investing decisions and how their RESP will be applied to covering their university costs and what will happen to the money if they don’t use it. We are your resource for educating your children and you shouldn’t be afraid to use us!

Is it time for your children to be part of your RESP decisions? Give us a call and set up a meeting to help get your kids money-smart! 416-960-5995 or at awalker@alignedcp.com

What Being Poor Should Mean to a Millennial

Last night I was kindly invited to speak at an event for the “Millennial Generation” hosted by AGF Investments. It was an interesting and fun evening filled with a lot of great questions and great food. But of all the questions sent to the advisors at the front of the room the question that I failed at was “what do you tell a poor client?”

Somehow this became my image of the millennial generation.
Somehow this became my image of the millennial generation.

This question took me off guard because when I looked in the room I didn’t see any poor people. I saw a lot of young professionals that weren’t yet at their peak earning potential, but that is part of growing up. These people weren’t poor, they just didn’t have a lot of money.

That distinction may seem academic to someone sitting at home on a Friday night who can’t afford to go out. After all, what is it to be poor if a lack of money doesn’t define you? But poverty is about a permanence of state, and not earning enough money can be temporary. Real poverty is about having a lack of options.

For instance, most Canadians would likely say that don’t have enough money, which isn’t the same as saying they are impoverished. It is simply a reflection of how our wants increase and grow with our incomes. In 2014 the research firm YouGov, Inc. did a survey looking for people to identify how much they needed to earn to be “rich”. Unsurprisingly as people earned more their idea of what constituted “rich” grew with their income bracket, which is why so few people self-identify as being wealthy.

Rich You can read the whole story about that from the New York Times. But for young Canadians who are fresh out of university, the climb up the financial ladder to long term wealth can seem daunting to say the least, and living in big cities can make modest salaries seem virtually impoverishing.

This place is awesome but it costs a fortune!
This place is awesome but it costs a fortune!

But that doesn’t make you “poor”.

Poor means a lack of options, or opportunities to change your situation. Well educated young Canadians in junior professional roles have lots of opportunities. But there is also a reason that we say youth is wasted on the young. Because young Canadians who don’t start saving, defer starting RRSPs and TFSAs, find that they are scrambling in their 40s and 50s to save for their retirement. They do have fewer options and are a great deal poorer for it. This isn’t a hypothetical; lots of Canadians are finding themselves in exactly this situation. Saving isn’t just about putting money aside, it’s about keeping options open in the future.

Globe & Mail Senior

The other day the Globe and Mail talked about the growth of debt among seniors, a move that was described as making seniors “Financially Fragile”. The core of investing revolves might be described as revolving around this principle: avoiding fragility. Frequently we represent investing as freeing people to enjoy their retirement on the beaches of Cape Cod, with sweaters draped over shoulders. But investing and saving is about being able to deal with all the rough spots in life.

Is this your retirement? Commercials for retirement planning frequently feature retirement as one of endless vacation.
Is this your retirement? Commercials for retirement planning frequently feature retirement as one of endless vacation.

Unexpected costs like new furnaces or car repairs can undo vacation plans and cottage retreats. Saving early doesn’t just help plan a life of leisure, it insures that your best laid plans aren’t upended by all the other things that life throws at you. It is far easier to be poor in old age once you’ve earned your last dollar than it is when you are younger and millions of opportunities await you.

So if you were one of the young Canadians worried that you don’t make very much, keep in mind that it is temporary. But if you want to avoid being actually poor in the future, start saving today so you aren’t panicking tomorrow.

Don’t want to defer your saving any longer? Drop us a message!