Many of us spend our lifetimes working hard to build wealth, but how do we preserve this wealth if we wish to create a legacy? Even if we do the best job in managing our own wealth, it may amount to little if we fail to adequately prepare the next generation for success.
The basic lessons haven’t changed: Imparting good saving and prudent spending behaviours, helping children to set and achieve goals and teaching the virtues of investing and growing wealth. However, in this modern era of connectivity, young people face new challenges: an escalating catering to instant gratification, “fear of missing out” (FOMO), social media pressures of keeping up with the Joneses and financial misinformation spread by “influencers,” to name a handful.
The good news is that Canadians appear to be engaging in financial discussions with kids at earlier ages.1 Indeed, the resources available through the education system still lack consistency, so having conversations at home can help kids get a head start.
Starting early can yield significant outcomes down the road. Learning the basics of saving and spending can help to prevent bad credit habits later — it isn’t unheard of to see young people undergo credit counselling due to credit card delinquencies. Recognizing how saving and investing can grow funds over time may be eye-opening. I/We often remind young people of the benefits of starting early: investing $265 per month at age 25 would yield over $1 million by age 75 at a rate of return of 6 percent, but starting later at age 45 would require almost $1,000 per month. Even small lessons in financial literacy can help in setting longer-term goals.
The ultimate goal, of course, is to ensure kids achieve financial independence as adults. Instilling good financial skills at a young age can also help to preserve wealth upon a generational transfer.
If you don’t know where to start, the table provides ideas for each stage of life. I am/We are also here to act as a resource. In brief, here are some ways I/we have helped families with financial education:
- Helping set up an in-trust account or small investment account. This may include purchasing a GIC to teach younger folks about interest income or exploring mutual funds/ETFs or shares that are relatable (Apple, Disney, etc.) so they can learn how the stock market works.
- Supporting family meetings to help younger folks understand our role and the services we provide: expertise, objectivity, planning and simplifying lives.
- Helping young adults open and manage a TFSA, FHSA or RRSP, supporting them in identifying goals and treating them as individual clients to foster independence.
If you are looking for support as you plan ahead to achieve a successful generational wealth transfer, please get in touch.
Financial Lessons for Each Stage of Life
Under Age 10
- Introduce an allowance when work is done
- Teach savings through the use of a piggy bank
- Teach about basic costs through trips to the grocery store
Age 10 to 17
- Set up a bank account; use a GIC to teach about interest
- Teach high-level cash flow management: spend using cash and high-level budgeting
- Use debit cards to teach about reducing balances
- Encourage a part-time job to learn to earn money and pay taxes; help kids file tax returns; teach about contributing to the RRSP
- Teach about the RESP in preparation for post-secondary school
Age 18 to 24
- Introduce credit cards and debt; teach the value of a credit score
- Set financial goals for education
- Teach investing; Open TFSA, FHSA and other investing accounts
Age 25+
- Support discussions on career, home purchase, marriage/families
- Provide counsel on setting short, medium and longer-term goals
- Have family discussions about shared values, succession planning
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