Teaching Our Children Financial Responsibility

Teaching our Children Financial Responsibility

Author: Vince Olfert, MBA, CIM, CFP® – Certified Financial Planner®

Right now, our two boys don’t have a lot of questions about finances. In fact, I have found that many of the children of clients that meet with us don’t know what questions to ask. I believe that this is not because they aren’t interested but rather because the topic can be so overwhelming.

I believe strongly in teaching financial responsibility to our children. I also believe that this often happens organically in our homes. Our children absorb financial values by watching our behaviours and listening to what we say. We also have the opportunity to be intentional in how we speak about money. Here are four things that happen in our family, mostly intentionally, in an effort to raise financially literate kids. I very much welcome comments or ideas that worked well (or are working well) in your family.

Talk about money:

We try to include discussions about money in our regular conversations. When we talk about money, we have found it reduces anxiety around the topic. Here are some things we try to intentionally talk about:

Mistakes we’ve made with money. I’ve definitely made mistakes! For example: When I was a teen, my brother and I badly wanted to buy the Atari 2600. It was $249.99. My dad said to wait because the price was going to go down. We thought our dad was CRAZY! Did he realize we were talking about the Atari 2600?! So, my bro and I bought it and two months later (no joke) the price dropped to $29.99. BIG LESSON LEARNED.
How hard it is to make money and how easily it can be lost: Tell the stories of how you had to scrimp and save to buy your first home. My boys are definitely tired of me talking about my university days and how there was one month where my bank account had $2.47 at mid-month and that needed to last me to the end of the month. Can we say…hot dogs and ichiban noodles?!
How we view money. One of my favorite phrases when talking about money is, “Money is just a tool to be used to do the things that we feel called to do while on this earth.” That’s it. If we acquire a bunch of money but never spend it…what a waste! It would be better to give it away.
Being generous to others. We started a tradition a few years ago where we give family member some money to give away at Christmas. We sit at the table and go through some of the charity giving booklets that we receive in the mail. One year, our youngest was quite excited to buy goats for a family. We have had some great conversations around giving as they have gotten older. It’s been a fun activity to do together.
Good investments we’ve made. It’s also good to tell our kids some success stories where we made good investment decisions. Every once in a while, I will talk about a positive investment we made such as purchasing our home or putting money away into investments regularly.

Save for extra things even if you could just go out and buy it

Our kids watch us. Yep, they do! If we go out and buy something whenever we want, it doesn’t teach our children to be disciplined with their money. Recently, I wanted to upgrade our sound system. We talked about saving for it. Then we listed our current sound system for sale and sold some of it. We updated them on the status of the savings (whether they wanted to hear about it or not) and celebrated when I installed the system, including forcing them to listen to my 80’s music at a loud volume (whether they wanted to or not).

Invest their money

Our boys had saved some money over time from birthdays or work. We talked to them about investing their money and the benefit that investing could have. I think this is an important point – They needed to give the green light to invest their money. It had to be their decision.

We then opened an investment account and gave them updates on the status. For the first year, I made sure the portfolio was up through small additional investments of Dad. This gave them some initial confidence in investing. I made sure I communicated that the investment will go down at times and when it does…INVEST MORE! Nowadays, I don’t top up the accounts. They get the full experience of the investment market (the good and the bad) so that they learn to be comfortable with various markets.

Have them put skin in the game

I am a big believer in our kids having to invest something into what is important to them. That investment can be time, money, materials or thought. Right now, we are considering how to apply this principle in funding post-secondary education as our eldest moves into this new world. We feel that it is important for our boys to have a level of ownership and financial responsibility in their post-secondary choices be that school, work or travel.

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Saving For Retirement

What Are Your Options?
What is the best investment plan to use to save for retirement? It used to be fairly simple; the answer was maximizing your RRSP. Do you know what is the best strategy for your situation? Do you know what your options are?

Here is a basic overview:
1. Save – The first rule of thumb to be concerned about is that you are saving money for your future. Too many Canadians are spending all of what they earn and not putting away any money for their future. A good place to start is to aim at putting away 10% of what you make.

2. Tax Efficient – Ever since the launch of the TFSA, there has been a debate by financial professionals over which investment plan is more tax efficient to use, the RRSP or TFSA? My opinion is that it depends on your situation both now and in the future and should be looked at on a case-by-case basis to see what fits best. I would be cautious if a financial advisor is always only promoting one plan type over the other, both have their benefits. (For more info on TFSAs, see my article from Sept 2013 – http://jaybrecknell.ca/demystifying-tfsa/)

3. Business Owner – If you are a business owner the question can get even more complex as you have more options. Should you use your RRSP, TFSA or instead save your retirement funds in a holding company? Since corporate tax rates are at an all time low in Canada more business owners are saving corporately versus in a RRSP or TFSA. There can be many benefits to saving corporately as it can provide flexibility to the business owner. As this can be complex it needs to be put together by a professional that understands your corporate structure and the tax and legal rules that are involved.

As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

December 1, 2014/by Vince Olfert

Business Planning

Business Owners Fail To Plan

Prepare Your Business For Sale
Only 9% of business owners have a documented transition plan in place and yet 70% of small business owners plan to transition in the next 10 years*! As a financial planner I continue to meet business owners who are planning to sell or transition their company but they do not have a plan. Typically they are either unsure of the process, so they procrastinate or the business is their baby and they do not want to let it go. It is understandable that a major decision like this is hard to make, especially without someone to assist you.

When a business owner is considering selling here are some things to consider:

1. Don’t Leave the Party Last – You see this with professional athletes when they face the question of when to retire? In my opinion you are either growing your business or it is shrinking it, there is no standing still. A lot of business owners later in their career can get into maintenance mode, which usually means the business is starting to decrease in revenues. At first the revenues may hold but after a couple of years you typically see them start to decline. If you want to maximize your selling price and be attractive to potential buyers be careful to wait too long.

2. It Takes Time – Selling a business can take you longer than you think. You need to find the right candidate to take over your business. You are looking for an individual that is an entrepreneur; remember there are more employees in the world than business owners. Also, in most transitions the current owner is asked to stay with the company to assist with the passing of the reigns. You should plan for 1-2 years to sell. This means you should be creating a plan 5-7 years prior to your planned exit.

3. Change – Every industry is faced with changes due to technology, regulatory, competition, etc. If you owned a video or record store in the 80 or 90’s, when was the best time to get out? What if the technology that Google is working on to make it so that cars drive themselves eliminate car accidents in the future. Could that affect you if you own an auto body business? What changes face your business?

4. Financials – Often times the financial statements for a business are ignored until it is too late. Yet they will play a very important role in the sale of the business. You want to make sure that your financials present the best view of your company so that a potential buyer is enticed to make an offer.

There are many things to consider when selling a business. The first is to get a professional that can assist you with putting a plan together to ensure that you maximize the value, save tax, and control when and how you sell your business. As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

*Source – http://www.advocis.ca/Update2014/index.html

December 1, 2014/by Vince Olfert

Insurance, Personal Planning

Protecting Your Biggest Asset

The Most Overlooked Risk
What is your biggest asset? Most people might answer your house, boat, car, or investments. When in fact it is your income and your ability to earn a living.

When I review a person’s financial situation, one of the most common areas that is overlooked is to protect their ability to earn a living. Disability insurance is a critical part of a person’s risk management plan. When you think about all of the things that people have insurance for, cars, houses, electronics, death, etc. Unfortunately if you do not have an income all of these other areas fall apart.

When it comes to managing risk, a financial planner looks at two main factors:
1. Risk – what is the chance of this happening?
2. Impact – If it does happen, what is the potential damage?

As an example, the risk of a house fire is low but the damage it can cause financially is extreme. Hence why people buy home insurance.

The Risk Is High:
Did you know that 1 in 3 people, on average, will be disabled for 90 days or more at least once before they reach age 65?*

The Impact Can Be Severe:
How long could you survive for without your income? Most families could last maybe 4 to 6 months before they would have to start selling other assets such as investments or their home. How would you survive till age 65 and then into retirement?

The main way to manage this risk is to have long term disability insurance to protect yourself in case of an illness or injury.

Possible Options:
1. Canada Pension Plan – This will only pay for the most severe disabilities and the amount is small.
2. Worker Compensation – This only covers you if it is a work related injury.
3. Group Plan – This is how most Canadians are covered. IMPORTANT! You should have your coverage reviewed to make sure you are properly protected.
4. Individual Plan – You can purchase this through the major insurance carriers.

Key Facts:
• If you are an executive or earn over $80,000 per year and you have group coverage you should have it reviewed, as you may not be fully protected.
• If you have group coverage your plan definition typically will change after 2 years of being disabled. This can allow the insurance company to decline your coverage if your disability is not severe enough. This is done to keep your rates lower for your group plan. You can get individual insurance to protect against this.
• The definition of a disability policy is critical.
• Most disability insurance is designed to cover you till age 65; some may have only a 5-year benefit period.

Questions?

*Source – “A guide to disability insurance”. Canadian Life & Health Insurance Association

December 1, 2014/by Vince Olfert

Teaching our Children Financial Responsibility

Author: Vince Olfert, MBA, CIM, CFP® – Certified Financial Planner®

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