itsHERmoney.com

Are you worried about your kids or grandkids’ financial survivability?

Monday, November 21st, 2011

If it seems that there is a constant stream of negative press surrounding Generation Y’s abilities to financially survive in today’s economy, you’re right. It’s a heck of a lot tougher out there today for young people to make it financially. They have extraordinarily high tuition fees that continue to climb at a steady pace, home prices in the lower mainland are pretty much unaffordable for most people and retirement – well that will most likely be a thing of the past by the time your kids or grandkids reach 65. It does look pretty bleak for Gen Y. However, you still need to encourage them to budget and save. If you are able to, help them in financially responsible ways.

Here are a few ideas on how you can help, straight from a financial advisor:

1. Help Generation Y to save for their education

Young people today are so overly burdened with student loans and lack of job opportunities. If you can help fund some of their educational costs they may have a better opportunity to start their own savings program sooner rather than later. If you are financially able to, direct any child benefits or gifts of money your child receives into a Registered Educational Savings Plan (RESP). Show your kids the power of savings by letting them see their RESP statements and encourage them to put babysitting monies, or other income earned into it. It’s important they contribute somehow to their education costs.

Often aunts, uncles, grandparents & family friends give cash as gifts to young kids and continue the giving cash well into their teens. This money often is wasted on the fun and frivolous things. Why not ask the parents to set up a Registered Educational Savings Plan (RESP) for the child and request any monies you give be put into this education fund. You can even ask for a receipt of purchase. Whatever monies you give annually will also receive the Canadian Government Grant of 20% on the amount deposited up to a maximum of $500 grant annually. In addition, there are other grants the child may qualify for that is based on the family’s household income.

Now the child’s parents will legally be the owners (subscribers) of this RESP. This means they can collapse the plan themselves and take out all the contributions tax free, lose the Government grants and pay a tax penalty on the accrued earnings (if they don’t have room to move into their RRSP).

If you are concerned about how financially responsible the child’s parents are you can also look into setting up your own individual RESP for the child. You just need the social insurance number.

As a financial advisor, I like the idea of one plan for all contributions for simplicity; one RESP statement, one financial institution to deal with and one set of fees. However, if you want to ensure the money is there for when the child needs it, set up an individual RESP. You will then be the subscriber. Remember, if the child doesn’t go to some type of qualified post-secondary school you will have to collapse the RESP yourself and pay a tax penalty on the accrued earnings (if you don’t have RRSP room to move the funds into).

The benefit of an RESP over a regular cash account for savings is that the monies grow tax free until withdrawn and then only the earnings are taxed and in the hands of the presumably low tax bracket student. Secondly, the Government Grants. You can’t beat free money from the Government so take advantage of it as soon as possible.

2. Start early.

Time is a huge factor in building any type of savings. Encourage your young adult kids or grandkids to save and early on. Twenty-five dollars a month directed towards savings may seem like nothing but if you do it consistently month or month and year over year increasing it as your financial situation improves you will have saved ‘something’ and ‘something’ is always better than nothing.

If your kids or grandkids are earning an income working for you and have a social insurance number direct some of those earnings right into an RRSP for them. If they are younger, they will likely spend their earnings frivolously. There may not be a tax advantage by contributing today. However, they can use the contribution at a later date when there earnings are higher but they will get the benefit of tax deferred compound growth right away.

3. Just save!

Don’t focus on encouraging saving for retirement to Gen Y. Just encourage saving!

Thinking about retirement at age twenty is almost ridiculous. Especially for a generation that will have a way different experience of what retirement is or will look like than their parents and grandparents retirement. So don’t discuss saving for retirement with your twenty something year old. Just encourage them to get into a good habit of saving.

Gen Y should build a personal nest egg for whatever financial goals lay ahead. Encourage them to invest as much money as they can into an RRSP each year ‘just’ for the tax rebate. This is free money from the Government to persuade us to save! They can take that rebate and either put it back into the RRSP to get more free money next year and continue to build on their savings or look at paying down some high interest debt.

RRSPs can be much more valuable to Gen Y than just future retirement income. They may help with a down payment on a home (Home Buyers Plan) or fund education for a period of time (Life Long Learning Plan). Both Government plans offer a period of time to pay back the monies into their RRSP’s without incurring tax penalties or you can include the withdrawals as income on your tax return and pay tax at whatever bracket you are in.

Your Gen Y child or grandchild may have a disability at some point in life and have to take a leave from work or decide to stay home to raise kids. If they are in need of a bit of extra income they have their RRSPs to withdraw from. They shouldn’t have much of a tax burden (depending on the amounts they withdraw) and assuming they are in a low tax bracket to begin with. Remember when you take monies out of your RRSP you have to include as income on your tax return and pay tax at your marginal rate. So don’t take money out for frivolous purchases.

When young people start some type of savings strategy early on they seem to continue to build on this habit as they age. Especially as they start to achieve some of their financial goals such as paying off their student loans or buying a home. Savings for retirement tends to be more seriously looked at as we approach our 40s. If you have fostered good savings habits with your Gen Y child or grandchild then it won’t be an impossibility to find money later in life to go towards their retirement goals.

4. Help with the savings. If you can.

If you’re the parent or grandparent of an adult child and want to help build their savings beyond just the RESPs here are a few ideas. If Sally or Jimmy are still living at home in their 20s and possibly 30s and are working, make sure you charge them rent. If you can, afford to put that rental income into an account earmarked for them. When the adult child is ready to move out and possibly buy a place of their own you have helped them to save a down payment already. Don’t let them know you have put that money aside so they have to learn to budget to find the extra monies to put towards their savings goals. What you have saved will just be additional help.

Or you can encourage them to set up an RRSP and direct part of the monthly rent into it (hopefully they are financially responsible enough not to touch the funds as they will own the plan). If grandma and grandpa still give cash gifts or want to give a lump sum gift to help out they can also look at RRSPs for longer term savings or a Tax Free Savings Account (TFSA) for shorter term goals. Both have to be opened in the adult child’s name and have contribution limitations. Your financial advisor can best assist with this.

There are many ways you can help your Generation Y child or grandchild financially. The best thing you can do is teach and mirror good savings and spending habits. Any cash that comes their way encourage them to save some or all of it. Introduce them to your financial advisor. Developing this relationship early on and learning about budgeting and saving for financial goals will help to foster smart financial thinking and actions from the get go.

5 Ways to Survive Being in a Sandwich Generation

Tuesday, August 23rd, 2011

If you’re feeling the strain of caring for your aging parents while trying to raise a family of your own, you’re not alone. Being part of a “Sandwich Generation” is something that hundreds of thousands of other people are going through as well. Facing the challenges of offering financial and emotional support to your parents while you’re trying to be there for your children is a lot to have on your plate. When you add work related concerns and your own financial planning matters, the situation becomes even more complicated.

However, if you’re part of the sandwich generation, there’s hope from financial advise. With the right planning and strategies you can ensure that you survive this demanding time in your life.

1. Get clear on your financial picture.

Before you can consider commitments to your parents and children, you need to understand your financial picture. You need to get some financial advise for women. Working with a financial advisor who specializes in mid-life transitions can help you assess where you are now and make safe and secure plans for the years to come. If you know your current situation you’ll be more capable of making the right decisions to prepare for college tuition, your own retirement and any support you may need to offer your parents.

2. Have a frank talk with your parents about their finances.

In order to avoid surprises you need to know how your parents are doing financially. Sitting down with them and discussing their plans if they become ill or unable to care for themselves can help you better prepare for the future and understand your responsibilities. If you find that it’s an uncomfortable conversation to have, consider sitting in a neutral environment with an experienced financial advisor to go over the facts together.

3. Get all of the necessary legal documents in place well ahead of time.

Taking care of your aging parents may mean making decisions in their names, and this requires durable power of attorney. You may also need to have additional legal documents to ensure stability for you, your parents and your growing children. It’s a smart move to get financial advise and get these in order before they are needed. This way you won’t have to scramble around during a crisis and you can make sure you understand the details of the paperwork.

4. Hold family meetings to discuss your expectations.

Another important piece of financial advise for women is to communicate with your family. This is especially important if you need to live in a multi-generational household. Communicating can help you avoid misunderstanding and can make sure that all members of your family, young and old, feel cared for and appreciated. During the family meetings make sure everyone has the chance to talk and express their needs.

5. Get the personal support that you need.

When you’re in the sandwich generation, your pressures are more than just financial. Expect to have a few emotional ups and downs as you’re working through the issues around your increased responsibilities. Be sure to get personal support so you can handle your increased stress. You can find help from a support group, a counselor or just spending time talking with a trusted friend.

When grown kids ask for money

Friday, February 26th, 2010

To Give or Not To Give?

‘To give or not to give’ is the age-old question that parents of adult children often contemplate. When I am asked for advice on this topic my response is always the same: ‘neither a lender nor a borrower be’ especially when it comes to family and friends.  In my experience, the costs far exceed the monetary value given, as relationships tend to suffer irreparable damages.

Having said that, each situation is unique and so to give or not to give really depends upon the relationship between the parent and the adult child.  If you are contemplating such a request, consider the following factors before making a decision; your child’s financial history, the other siblings in the family, whether your gifting or lending the money and most importantly, if you can afford it.

Your adult child’s financial history

Before you hand out any money, you might want to ensure that you’re actually helping your adult child and not enabling them. Otherwise you’re just throwing good money, after bad. So ask what the money is for and what sacrifices or life changes they have already made themselves prior to asking for financial help? Get a clear picture of their current financial situation to see if they are living beyond their means. Is borrowing a chronic condition and your adult child needs help once again because they are not managing their money responsibly? Or is this a one-time situation in which they need temporary financial assistance?

Other siblings in the family

Giving money to one child and not another will often lead to resentment. So if you cannot afford to dish out equal amounts to all your children then either ensure to provide the financing by way of a loan so it is paid back, or make provisions in your Will to account for the money given.  If it is a large sum of money, you might start off as a loan and then evolve it into a gift as part of the child’s inheritance. Again, ensure to put this in writing to prevent family squabbles when you are long gone.

Gifting or lending

Be very clear, is it a gift or a loan? If it is a loan, set clear expectations. Specify whether there will there be interest charged, the terms of repayment, and put it in writing. Setting terms in writing allows everyone to know from the get-go where they stand and what their future responsibilities are.

Can you afford it?

Before dishing out the money, ask yourself earnestly ‘can I afford to’? Any money you give or lend should be beyond what you need to cover your day-to-day expenses without touching your emergency savings, credit cards/line of credit and your retirement savings. If giving your child money puts a financial strain on you today or in retirement the answer without question should be no.

Responsible money management is part of being an adult as is the consequences for poor management. You are better off helping your adult child improve their financial skills then by bailing them out. Saying no is never easy but it’s better to endure a little discomfort now then a major fallout later. Whatever you decide, just be sure that you think through the ramifications beforehand and seek out the advice of a financial advisor. Maybe the best way to help your adult child is with a little guidance, direction and some time with a financial planner. 

5 simple money principles to teach your kids

Thursday, October 1st, 2009

Whether you know it or not, you are teaching your kids every day about the value of money by how you spend it, save it, invest it or waste it. Qualified or not, you are their money coach and they will learn by watching and listening to your every move.

If this concerns you, not to worry as all is not lost… yet. If you want to raise financially healthy kids it’s better to start late then never at all and an allowance is a great way to start. Among other things, it teaches your kids how to manage their ‘own’ money. Even though it should be up to them to decide how to spend the money, it’s a great opportunity for you to teach some practical skills. I suggest starting with 5 simple money principles: earning, spending, saving, borrowing & giving.

Earning:

An allowance is your child’s ‘pay-day’. Establish the amount based on their age and the family finances. Be consistent and pay on time. The purpose of an allowance is really to teach your kids firsthand about money management. Don’t tie it to chores. If you are a member of the family then you are responsible to share in the household chores. This is not something you or anyone else should get paid for. However, give your child the opportunity to be able to earn extra money for taking on additional chores or responsibilities. Also, don’t pay or reward for your kids getting good grades. That is a personal accomplishment and should not be tied to a financial benefit.

Spending:

Have a discussion with your child about what exactly they are expected to pay for using their allowance. This is the start of them learning to live within their means. Something many adults don’t even know how to do successfully. Teach your kids age appropriate budgeting. For example, you have $5 to last one week and you are responsible to pay for any treats when we go to the grocery store. As your child gets older, their allowance increases as does the expenditures they are expected to use it for.

Savings:

Just as financial gurus advise you to save 10% of your income, so should you advise your kids. Teach them to pay themselves first by encouraging them to take 10% of their allowance and put it towards savings. If your child earns $2 a week, then suggest they take .20cents and put it into their piggy bank. If they earn $10 a week, again suggest $2 go towards savings. I often recommend creating ‘savings jars’ and act as the Bank of Mom. Open a ‘real’ savings account for each child and when the jars get full have the kids take the money to the bank to deposit. There will be nothing more exciting and encouraging for them, then to see their own money grow. Remember, it’s not the amount their saving that matters as much as the lessons and habits they are learning.

Borrowing:

You may think this is one aspect of money management you don’t want your kids to learn too early, if at all, but your child needs to be taught from an early age that ‘borrowed’ money is not free money. So teach your kids ‘age appropriate’ lessons on borrowing. If your child wants $10 to buy something and they have already spent their allowance, you now have a perfect opportunity to teach some valuable money management lessons.

You have the option to take a hard line, no money, no purchase. You can teach your child how to start a savings plan to build enough money to make this purchase – delayed gratification. Or you can lend them the money from the Bank of Mom. I suggest creating an ‘IOU’ jar and have your child sign an IOU. You may want to add interest on the borrowed amount to teach an authentic lesson on how the real world works. When allowance day comes, be sure you take the agreed upon amount off the top as payment for the loan.  When your child realizes they have little cash flow and nothing going towards their savings, they may think twice about the next item they so desperately need.

Giving:

Last but definitely not least, teach your child the importance of giving back. Whatever charities or causes the family supports encourage your child to take a portion of their allowance and ‘give back’ If they happen to love animals, your child can buy a can of cat or dog food and take it to the local shelter. Or buy a toy for a child who is not so fortunate. There are also many non-monetary ways to give back; donate unused clothes or toys or volunteer your time, just to name a few. It’s not about what or how much, just that you are giving back.

It’s never too late to teach your kids about money. Just remember 3 key points, lead by example, start young and let them learn by doing. Although making mistakes is a part of life when it comes to money, it’s better to make them early while the ante is still small.