When I was a child, my mother never discussed her income, or whether the family was struggling financially. As an adult, I learned this was because she didn’t want me discussing these issues with friends. But I now realize this was a missed opportunity to teach me about money, and for her to explain why it was a sensitive topic.
Many young people have likely experienced the same thing. Growing up, the topic of money was seen as taboo, so their parents never taught them how to manage it—or did so vaguely and without concrete examples. As a result, debt is one of the biggest issues Gen Y faces today.
So it often falls to you to ensure clients provide their kids with debt and cash flow education. Here are two ways to help.
01. Break the taboos
Encourge your young clients to talk with their kids about money issues without having to share personal information like income. Around age two, children can start learning that choices are finite—so they can have either oatmeal or eggs for breakfast but not both, and not whatever their hearts desire.
Then, as kids enter elementary school, clients can teach them to identify bills and coins. And, as kids ask for toys or electronics, clients can explain that those treats have to budgeted and saved for. They can also bring children grocery shopping and teach them how to comparison shop.
When kids are between the ages of 10 and 12, clients can open bank accounts for them and teach the basics of deposits, withdrawals and chequebook balancing.
Once children enter high school, parents should start teaching them about credit. Parents can also disclose more about their family attitudes toward money. And, they can insist their teens stick to budgets (and close their wallets once a child’s maxed theirs out). I recommend using automated online budgeting programs like Mint.com to track money going in and out.
Before kids start university, parents may want to introduce some basic investing concepts. Throughout this process, you should be available with resources and educational documents.
Having a handle on money early in life can improve a child’s financial literacy and strengthen personal relationships.
02. Show the impact of debt
Once the client’s child is older and is shopping for a mortgage, consider meeting the broker so the two of you can establish a plan should interest rates change. Create cash flow scenarios to see if she’d be in trouble financially if she were on a variable interest rate. Bonus: You’ve built a COI with the mortgage broker, and there’s potential for a referral.
And walk the adult child through worst-case scenarios to see if she has financial security. Ask:
- How would you rate your job security? What would happen if you lost your job?
- Do you know how your budget and debt levels would be affected if interest rates changed?
- How much cash comes in each month? What’s your plan if expenses increase unexpectedly?
- Do you have insurance in case you get sick or die unexpectedly?
Also, ensure she has an emergency fund. Get her to set up a pre-authorized debit of at least $25 per week, which goes into a separate savings or non-registered account.
Remember, talking about money is tough for some parents. So help ease the process by starting early.
- 11% of Canadians have ended relationships for financial reasons
- 50% require at least five dates before discussing finances with a partner
Caroline Hanna is the investment advisor, BA, CIM, National Bank Financial Wealth Management.