Those who are children today will face new financial opportunities and challenges that we can only begin to anticipate. We are tempted to normalize and behave as if things will continue as usual, even while the world is undergoing radical change. We want the kids to be safe and secure, but the best way to do this is to prepare them for the world as it is and as it will be.
In Canada, the most secure jobs in 2020 are with governments, particularly health care. Will this continue as governments engage in massive deficit spending that will require decades of debt repayment? What about university education? Will this continue to be the most reliable path to middle and upper-class financial security? What about location and lifestyle? Will the new trend for moving out to the suburbs and smaller communities accelerate or taper off and reverse? Can we anticipate major changes to Canadian content in products and services, a return to previous immigration levels, and a transformation of small businesses and entrepreneurship in Canada?
As we work through thoughts about the future, we can begin to prepare our kids. The first step is to prepare ourselves. We know that Canada is an amazing place to live and work and offers boundless opportunities, but there is no guarantee of financial security and success. We need to equip ourselves with optimism and a focus on practical skills.
You may have heard that young adults have been struggling to launch. According to a 2019 RBC Family Finances Poll, 9 out of 10 parents (96%) are financially supporting their children (ages 18-35 years). On average, this costs parents $5,623 per year! This is an added cost that many parents cannot afford. Approximately 3 in 10 parents (32%) are seeing delayed retirement to help kids with post-secondary costs and are facing an inability or delayed response in paying off their debts.
There is some evidence that in the 2020 Pandemic, many young adults have retreated to their parent’s homes and financial resources. The graduates of 2020 cannot be having an easy time in attempting to begin their careers.
As much as parents want to help their kids, the time to begin is when they are in the process of acquiring life and workplace skills. It is a little late when they have reached their mid-twenties and it turns out they do not have sufficient job skills to generate the income they need to sustain themselves.
Along with the ability to generate income, our kids need to know what to do with the money once they get some of their own. Financial literacy is a critical skill for future success and you cannot be sure that your children will learn it anywhere else.
We begin with self-awareness and our financial education. Review your attitude towards money. What did you learn about money in your upbringing? Did you experience much conflict around money? What lessons have you learned along the way? What is your money personality? Are you a penny pincher? Frivolous spender? Do you buy on impulse, or take a painfully long time to make a purchase? Are you ashamed of your financial history or proud of your privilege and success? Are you generous with those who need your help? Your financial attitudes and habits send a powerful message.
An age-old way of teaching kids about money is to give an allowance along with household responsibilities. A good guideline is $0.50 to $1.00 per year of your child’s age. For a 10-year-old, this would be $5 to $10 per week. If are well-off or having a good year, do not be tempted to be more extravagant. If they need extra money for a special reason, perhaps they could do extra chores or help the neighbours. If you know people who need assistance but cannot afford to pay, consider having your kids volunteer and then paying them yourself. As they grow older, watch for opportunities for them to do paid work.
Teach your children to save. If you are giving your child $10 per week for chores, encourage them to put even just $0.50 per week into a piggy bank. In six months, show them how much money they have saved and talk to them about why it is important, and what they can do with that larger amount now.
One of the hardest financial lessons for all of us is to think before we buy. Teach by example and encourage your kids to do this too. Teach them about how advertisements are designed to make you want something. Ask them to wait a week. Do they still want that game or clothing?
Involve your kids in household finances where appropriate. Avoid stressing kids out over your tough times or being overly proud of your financial success. What you do want them to see is balancing the budget, especially when it comes to financial matters that involve them. Their school expenses, family vacation plans, grocery and clothing budgets are all relevant to their everyday lives and will inform their future financial decision making.
Seeing the patient care and attention you devote to financial planning will make an impression. Discuss affordable choices and explain why you make certain choices. Although financial education is slowly making its way into the schools, you are the best example for your children about money.
Bonus: Your kids are young adults? Quietly, reinforce the importance of practical skills to earning income and the power of saving and living within your means.