As children go through the various stages of life it’s important to teach them about the value of money. Whether it’s saving wages from their Summer job, collecting an allowance, or setting out on a new career path as a recent university graduate. Whichever stage they are at it’s important to include them in financial discussions so they can make educated decisions about their finances.
Join Senior Financial Advisors Rob McClelland and Mike Connon as they discuss some healthy financial habits you might want to teach to your children.
Transcription
Rob (00:00):
Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management and this is, Think Smart, with TMFG. Today on Think Smart with TMFG, Mike and I are going to be discussing how to teach your kids about money and savings.
Mike (00:22):
This was a request I got from a few clients with young children. A few of them just had kids in the last three or four years and they said, “We love listening to your podcasts and we’d like to get some feedback on what we should be telling our kids.” And this is going from early ages on from when they’re just learning to speak and learning the first time you go into a candy shop to buy candy, all the way up until they’re going through summer jobs, through university, and even into their early adulthood, we’ll call it.
Rob (00:55):
I thought might be interesting to talk about each of our own experiences and how we got to where we are today, in terms of what we’re doing with our own children.
(01:04):
So for me, from a young age, I always received an allowance and I even remember when I was six or seven years old, I was given an allowance. I could go down and go to the candy store and buy some candy. I was able to do that and in those days I guess I went down with my sisters in the early days but eventually I was going down by myself. And at the odd time we would stop by my grandfather’s because we also knew we might be able to pick up a few nickels from him as well. And so his house happened to be on the way to the local candy store, which was probably about a 15-20 minute walk.
(01:47):
As I got older, I always received an allowance from my parents. Sometimes it was tied to chores. Sometimes it wasn’t. But it was never enough for me and from a very early age I started doing all kinds of things to make additional money.
Mike (02:04):
That’s surprising, Rob. An early big spender.
Rob (02:07):
I’m a spender, so no surprise that the money wasn’t enough. And some of the things I did, I started a shoe shine business at the golf club. I used to sell, believe it or not, french fries at the end of on the sidewalk. We had a bus route and so I used to sell french fries and drinks and that was at a very young age.
(02:34):
I even started a library and I would rent out my books to my sisters. I had four older sisters and I would charge them a nickel if they wanted a book for a week. That was me, so I always needed a little extra. What about yourself?
Mike (02:52):
It was funny, I don’t think we ever got an allowance, but when I was in early grade school, my parents had a liquor store and Jolly Rancher candies, well they’re still big now, but they’re big back then. And in the liquor store my mother would buy them by bulk and I found out what the price was and I realized I could sell them at school for five cents a piece and I think I could get them from my mom for two cents, which was cheaper than I would could buy because they had to buy from the candy stores. I had to pay what my mother paid from the distributors.
(03:19):
So I would go into school and I’d be the Jolly Rancher dealer of the school going around and that gave me enough money to buy my own Jolly Ranchers or whatever it was on the way home, but it wasn’t much but you could actually buy stuff with. We go home with 10, 15 cents in our pocket and you could stop at the candy store and get some things that you wanted.
Rob (03:37):
I’m hoping you’re dealing stopped after candies. You didn’t progress beyond that.
Mike (03:41):
Yeah, I didn’t have a broad enough mindset at that time.
Rob (03:45):
That’s good. So, as I got older and summertime came, that was the time for me to get summer jobs and I started probably at age 12. I used to work at the golf course. We called it shagging balls or picking up golf balls. You’d walk around and there was no electronics involved. We didn’t even have one of those devices where you’d clamp down on the ball. You actually picked them up by hand and put them into a container and just went around.
(04:15):
I eventually started chipping and doing things like that, but I always had a summer job and from age 12 on, all through university, that was just natural for me.
Mike (04:27):
For me it went from mowing lawns for a bit, to paper routes came a big thing for me. We were in a pretty packed neighborhood. It was Bergen County, New Jersey. The paper was the Bergen Record and I took on one paper route and I realized after a while, I think it had 30 papers, and the kids were generally unreliable, which happens with a lot of kids. So kids kept on dropping the routes, not showing up, and every time she said, “Do you want to take over another route?” And by the time I got into high school, I think I had 110 papers delivered. So I was going through the whole neighborhood. I just took over all these other routes that no one else wanted. And yeah, I made a lot of money.
(05:03):
I remember being in grades seven or eight, and making more money than anyone else that I knew just because I had these three routes going. And for me it was just buying bicycle parts at the time. So, I didn’t have much of a savings idea. I saved a bit of money, but I had the nice bicycle in town.
Rob (05:19):
That’s interesting you say that. I would’ve been one of those unreliable kids. I took on a route. I lasted about two weeks and said, “This isn’t for me.” Something about it. Our house was at the top of a big hill. No matter which way I went, I was going uphill or downhill and I gave it up after a short period of time.
(05:39):
So you start having kids. What are some of the lessons that you’ve learned in terms of your kids and financing? Did you give your kids an allowance?
Mike (05:51):
Never gave my kids an allowance. I never got an allowance, so I never gave them an allowance I probably should have. It was just never part of my upbringing, so I never did. So they learned I’d either buy them things for a period of time than get them to get jobs early on.
Rob (06:06):
So, your kids are still relatively young. Dylan’s just off to university. Katie’s still at home. Do either of had have any money other than that what they’ve earned?
Mike (06:17):
Well, Dylan went and he worked at McDonald’s, which was, I always recommend to anyone who has a child that’s 16, it’s the greatest first job ever. It just trains. McDonald’s to us is still even in our business, we look at McDonald’s, the one the greatest business is ever set up. It’s all systematic. It teaches people how to, number one, follow systems, how successful you can be with systems, how to be efficient in everything you do, and also gets them deal with the public. So I think that’s a great starter job. And I’m sure there’s lots of other ones, but I think that’s a great training session for young adults.
Rob (06:49):
So it’s interesting. We did give allowances and part of it is because I received an allowance, so I always try. I thought my parents did a really good job. Obviously I’m a financial advisor and I’ve done well, so I give a lot of that credit back to my parents. So we gave our kids an allowance and then if they really wanted to buy something important, I didn’t make them pay the tax. So I would cover the tax. If they wanted to buy a $20 item, I would cover whatever the tax happened to be at the time.
(07:18):
But I also did something else. I obviously saved for their education, but I also started in trust accounts and the plan for those was to use those for university education on top of the RESP. The reality is the kids have never touched the in-trust accounts. I didn’t need them for school for them and so that money has built up and I’ve now got a different view on that. What about yourself?
Mike (07:46):
Before my mother passed away, she gave each one of the kids $5,000. I put in a trust account for them. I never touched it and now it’s worth 10,500. Even after all these market corrections, everything, it’s still has doubled up in value and that’s over about a seven year period. So, that’s been good for them and taught them. I always gave them the statements. I show them as soon as they got it, even from a young age, I give them the statements every month so they could see the growth, the ups and downs and understand how investing works.
(08:12):
It’s important to have them involved. A lot of people try to keep these funds secret from their kids, but it’s not really the money that’s given the value, the experience of seeing what money can do, is more valuable than the actual money at the end of the day.
Rob (08:24):
How have you handled when the kids earn money? So they have a summer job. I know Dylan did very well over the last summer and each of my kids have had some really good years with summer jobs. Do they save any of that money? Do you have them put any of it aside?
Mike (08:43):
Yeah, pretty good because he’s a saver, so that was good. Luckily he worked up somewhere where they had no Amazon delivery, so that helps save him quite a bit. He said there’s nothing I can buy up here and so that helped the saving. It was funny. He just bought a… I went to get a laptop for university and I went to go buy it for him and he just said, “I’ll pay for half of it.” He gave me the money for half of it, which surprised me. He said, he had the money. He said, “No, no, I’ll pay for half it.” So, that was a good start going in the right direction. It’s nice when you begin to see that happen.
Rob (09:14):
Yeah, it’s interesting. So I look at Eric, who’s now 26. He had some good summer jobs working in the grocery store up north, working at the golf club, and then eventually working in the restaurants and bars up there. So he made some good money and he always put away probably 80% of the money. He wasn’t a big spender. He put it away and we basically added it to his in-trust account. I just put it in a different investment, so he always knew what he had put in and what I had put in and that he’s done really well. That that money has grown substantially over time.
Mike (09:50):
Well I remember in university, I always worked through university. I always worked in bars and you’d make decent amount of money in the bars and I remember always in university, money was an issue to everyone but me and it was a great feeling because I didn’t come from a lot of money, but it was neat being in university and everyone else is worried about being tight and not able to go to the pub that night and trying to find place with one dollar shooters, not being able to take a cab home and I always had money in my pocket. It always felt good.
Rob (10:19):
Yeah, yeah, it’s interesting. So, I go next to the two girls. Georgia has graduated now and is out working. She’s always, she’s a spender like me, so she’s always gone down to her last nickel. So even though she might have put $2,000 away at the end of a summer, it quickly disappeared. Some of it she used for the first two months of the school year and after that it was the Bank of Mom and Dad that would be called upon.
(10:50):
Lily, halfway through university, she’s a mix of spender and saver, but she’s done a pretty good job of never touching the money she puts away in the summer and that today could be $3,000-$4,000 that she’s put away in her in-trust account.
Mike (11:05):
Yeah, we have, Katie did Skate Canada. She’s been teaching skating for probably five, six years now since they allowed her to teach. So, she’s always got money from that and it was enough to cover little things she would want to buy. I’d still help her out. I’d still buy all the clothes and things like that but if she had to go out with friends or do anything like that, she had her account from her skate money.
Rob (11:26):
Let’s go to the next subject, weaning them off the Bank of Mom and Dad, and you and I have relatively strong opinions on this, not opposed opinions but maybe opposed to some of our clients out there.
(11:42):
My take, and again it’s back to my own experience, I was weaned off all the things that my parents used to cover. So whether it was car insurance, whether it was gas, we didn’t have cell phones back then, so that was never an issue. Before I knew it, I had to be a hundred percent on my own financially in my early twenties, once I graduated from university,
Mike (12:05):
That was the same rule in our family. Essentially, my dad paid for first year university, then we’re sort of paying for the rest. He covered tuition but then you had to pay all your room and board and all that other stuff. So we managed to have the money for that.
(12:20):
I remember I think second year university they stopped covering car insurance, so I had to pay for car insurance and then I was already paying for gas. So yeah, it was a wean in process and by the time you finish university, you are basically on your own and work from there.
Rob (12:36):
My experience, very similar and I can only judge by my eldest and I’ve weaned him off basically everything; car insurance, gas, any extra money, anything. At this point I still cover his cell phone. I’ve let him know at the end of this year, he’s off the cell phone plan. Our plan’s pretty good. So he has agreed to pay me and stay on the same plan, but he’ll be sending me the check, as opposed to me covering that bill.
(13:04):
And what I’ve done from Eric now, I’ve figured out when I weaned him off everything, the girls will have to follow the exact same pattern.
Mike (13:12):
Being a financial advisor, it gives us a different opinion on this because there is a difference between helping and hurting kids and we see it so much and we find some parents, we see them giving the money and they’re doing more damage to the kids. They think they’re helping them, but they’re hurting them. And we can see this goes on when kids are 30 years old and they’re still covering all their insurance, they’re covering all their cell phone bills, they’re paying for all their cars, the gas and everything like that and the parents struggle tremendously doing this. And not only the parents are struggling, the kids are going to have a tremendously difficult life because they haven’t learned how to budget or live to their means.
Rob (13:51):
With that, I always think it’s about the fire. If you continue to give them money and bail them out, you’re taking away their fire. At some point that fire has to turn on, to figure out how to survive in this world. And it’s, the world as we know, is full of ups and downs. I can’t imagine what it’s like today for young kids with rents through the roof, food through the roof, they still want a social life, and yet they’re having to cover all their own expenses and their salaries aren’t necessarily keeping up with the price of goods these days.
Mike (14:28):
And unfortunately you’d think it’d be the rich parents that are spoiling the kids and the less wealthy parents that are having the kids struggle. It’s the opposite, it really is. A lot of the wealthy families really understand this and they make sure their kids don’t have that experience where they want to get them experience on how to make money and how to live on their own.
(14:48):
What’s the Warren Buffet quote? He was interviewed in Fortune Magazine, 1986, and he was asked what he was going to give his children? And his quote was, “Enough money so they would feel as they could do anything but not so much money as they could do nothing.” And that was his whole quote at that time. That was 30, I guess, yeah, 38, 40 years ago. And when you look at it right now, he’s actually going to leave all his money to the fund for charity and his kids have already done well for themselves. They’re not going to receive anything from him.
Rob (15:21):
They’re in their sixties and seventies, now as children.
Mike (15:24):
They’ve had a good life. I mean, I’d hire Warren Buffet’s kids, my financial guy. I’m sure he is giving them a bit of an advantage.
Rob (15:32):
One of the interesting things is, and we’ve maybe touched on this before, but it’s how important is starting saving early? And let’s say your goal is by age, say 67, to have a million dollars. What do you think you have to save a month to have a million dollars, by age 67, if you’re going to get say a 6% rate of return?
Mike (16:00):
So we’ve done the numbers and it’s pretty shocking. Age 20, it’s not very difficult to become a millionaire. All you have to do is about $319 a month over that timeframe. But as you get older, if we move to age 30, it doubles. You’re at $600 a month, $613 to be exact. At 40 years old, you’ve almost over doubled again. You’re at 1,240 a month. And then if people wait to their age 50, now you need to do $2,830 a month to become a millionaire by age 67. And that’s a lot of savings. After tax, that’s going to kill you.
(16:40):
We sometimes have people who have started their retirement savings a bit late, It’s the most depressive meeting for us because once we tell them how much they have to save to get there, they’re in a bit of a shock.
Rob (16:50):
So this is where it kicks in. So now they have, let’s say they’ve graduated from university or college and what do you teach them? You still have a little bit of control. They’re in their early twenties. They’re still listening to you, hopefully.
(17:05):
For me, it was getting them on their own automatic savings plan, ASAP, hitting that 15%, here’s what they tell me what they’re making. Okay, this is what you got to save a month. And I’d get, “Come on dad, we’re not doing that.” I said, “No, this is how you got to do it and you never stop it. You can’t touch this money. This is going to go towards your first house and you just got to start it. And every time you got to raise, you got to increase it.” And they don’t want to do it, but they do it.
Mike (17:36):
It’s got to be just habit. Part of your money is not yours. It’s funny when you look at one the most, and I’m probably going to be pulled over for saying this, but one of the most unsuccessful professions financially speaking is the police force and most people’s jobs follow natural rise in wages. So when someone starts off, they’ll start off a job that makes $40,000 a year. They’ll keep on going. They’ll go 50, 60, 70 and it follows this upward curve as the career extends.
(18:05):
I always wondered, because I had a few clients that were police officers and had tremendous problem with savings and I looked into it because I find it a very interesting idea. They do have good pension plans, so it’s going to be helped out over there. But early on, officers, because when you’re 25 years old and you’re a police officer, you pick up all the extra duties.
(18:23):
So, you find the officers that are 25 years old, because they’re down the Sky Dome, they’re working at nights, they’re doing concert events, they do all this. They make more money than officers that are 50 years old and so their career trajectory is almost flat to negative, which creates a real problem for savings because when they start off in the early age, they start to spend everything. They buy very nice cars. They have everything on the top end, but the careers don’t take off like that.
(18:50):
It’s the other problem with the restaurant business. The restaurant business has another one of those career trajectories that’s it’s got a negative curve to it. So you make more when you’re waitress in or bartending when you’re 25 years old than you do at 50 years old and it makes it a very difficult career. So, I even talk to my kids about that when they’re going career choices and you should talk about that because they don’t know. I didn’t know at that time until you’ve seen these things.
Rob (19:19):
A final note on this is, and we’ve done a whole podcast on how much you should help them in terms of a house down payment. So I did mention that I’ve been doing this money into an in-trust account and it probably started at maybe $50 a month per child when they were born. I would put it in for them and that money now that they’re 18, is now theirs. They haven’t touched it, at least so far. I’ve decided that I’m going to continue to fund that account even though it’s their own account, until they buy their first home, at which point I’ll stop. But what that does is that will give them the money that I would normally have given them when they buy their first home. I’ll have already pre-saved it. So it’s almost a four savings plan for me, so that I don’t have to touch capital when my kids come to me and say, “Dad, could I have $50,000 to help? We want to buy this house and we can’t afford it.” I’ll have already put that money away for them.
Mike (20:24):
Notice this whole podcast, we haven’t mentioned RESPs because that’s not the kids’ job. That’s sort of your job as a parent to save for a kid’s education. It’s a whole separate thing. That’s a great thing to do. But beyond that, you can’t just go and send your kids to university. Say, “I’ve done my job. I’ve trained them well. Go fly and be free.” It doesn’t work like that.
Rob (20:42):
Well, you’re just discovering the benefits of actually having an RESP that you can now actually start taking money out of, as opposed to putting money into every year, to help with Dylan’s education.
(20:53):
That brings us to the end of another week. This is Rob and Mike with Think Smart, from The McClelland Financial Group of Assante Capital Management, reminding you to live the life that makes you happy.
Assante Capital Management (21:28):
You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice, based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.
