For Parents | Money Club

The Parents Page - Pay It Forward

Parents, grandparents, aunts and uncles, this page is for you.

You can have a constructive role to play in helping your kids on their journey to financial independence. Most importantly, help them build good habits. While also helping them out financially. It can be a win-win for both of you.

Warning: money is a very messy topic for lots of families. If money is a taboo or a stressful topic of conversation in your family then what is discussed below is likely not for you. The timing probably is not right today. Maybe down the road.

But let’s assume that money is not a taboo topic in your family. And you generally have a good relationship with your kids, including when it comes to discussing money and personal finance topics. What follows might interest you.

Before you do anything, the kid(s) need to demonstrate they are serious and committed to doing their part.

Have they:

Completed Financial Boot Camp?
Implemented a 3 Step Plan of their own?

If they have, perhaps you can reward them by helping to accelerate their plan.

What could your help look like?

An example. Perhaps you can help them out with some of their contributions. Maybe you match - at a 50% level - their permanent savings for 1 year? For example, if they save $1,000/month, you e-transfer them $500 each month. For 12 months. So at the end of 1 year they will have $18,000 (instead of $12,000) working for them. Compounding tax free for decades.

Establish the Ground Rules

Before you agree to do anything it is very important to set the ground rules up front. Eyes wide open for both parties. Below are a couple of suggestions:

Rule 1: Permanent savings - savings that will not be spent on anything (except perhaps to buy a home). Permanent savings is not spent on vacations, vehicles or even a wedding. You are willing to help them out - but only if the money is allowed to grow for many years/decades without being touched.

Rule2: Broad based index funds: contributions (ideally both yours and theirs) go into a broad based index funds.

Rule 3: Timeframe: everyone needs to know this is not an open ended commitment on your part. Select a start and end date for any help. At the end of the time frame review results.

You are done. Good job! Hopefully it helps. Perhaps it goes well enough that you decide to do it for another year (with modification - based on the learnings from the first year).

Final Comments - Building Good Habits

Your matching contribution doesn’t have to be a large amount. The amount is less important than encouraging and rewarding the right behaviour over time. You are helping your kids build the foundation to their financial house - one brick at a time.

By offering to match their contributions, you will be encouraging and rewarding the habit of saving and thrift. Stuff like ‘Live below your means.’ and ‘Pay yourself first.’

The kids can use the help when young. This also lets the power of time and compounding work its magic. The results can be life changing over a 20 and 30 year time-frame.

Of course, if you do anything, it needs to be tailored to your and your kids specific situation.

And of course, if your kids are jerks and they don’t take money and financial literacy seriously, well, it probably would be dumb to try and help them out.

Stop Buying / Giving 'Stuff'

For birthdays/Christmas stop buying your kids and grandkids stuff they don't need. Instead, why not ask if they have a registered account set up (TFSA, FHSA, RRSP, RESP). If they do, why not offer to give them a monetary gift instead? It can be a small amount.

Give them the gift that keeps on giving.

The Big Picture - Estate Planning

There are also solid estate planning reasons to begin to execute this strategy. It is a way to educate the younger generation on important personal finance topics. Help them get their infrastructure set up. Encourage the right behaviour. Perhaps most importantly, if done well, it can also provide the opportunity to mentor younger family members.