There may be no more difficult topic to broach with another person than money. It’s said to be one of the top sources of arguments between couples, and one of the biggest stressors faced by adults of all ages. Talking about money is never easy, but finances are an ongoing, lifelong concern that need to be discussed at every step of the way. Whether you are a parent talking to your children about managing credit or preparing to talk to your own parents about estate planning, each phase of life brings new financial challenges that are best handled with open, honest conversation. Together, you help create a financial guide for each other that will keep everyone on stable footing.
The Teen Years – Learning To Budget
While discussions about smart spending should begin as early as possible so that children grow up with a sense of responsibility towards money, the teen years are the time when the subject becomes more serious. As teens grow old enough to earn an income of their own, parents will need to teach them about the basics of budgeting. Talking to kids about money early on sets the stage for ongoing conversations throughout the years.
Most people remember their first paycheque – the excitement of having your own money to spend as you please, and the surprise of all those deductions, too. Deductions are a great way to open the conversation about saving money, and how putting aside a percentage of each paycheque for the future is a smart move from day one. If you haven’t already, now is the time to set up bank accounts for your teen, both chequing and savings. Putting aside 10 per cent of every paycheque has been a recommended move by financial experts for many years, and the sooner the habit is formed, the better. A plan for the money being saved can help to see how it’s adding up; teens may be saving up to buy their first car, and should also be thinking about putting money aside for post-secondary education. Parents can encourage saving by contributing an amount of their own for every dollar saved.
In addition to talking about the habit of saving money, now is the time for you to talk to your teen about basic budgeting. What regular bills does your teen need to pay? Do they need to pay a mobile phone bill every month, pay for gas in the car, or pay for auto insurance? A simple spreadsheet will help teens to see the amount of money coming in and what will need to go out each month to cover those bills. It will also give them a solid idea of what is left for the fun stuff they’re excited to buy with their own money.
In Your 20s – Managing Credit and Debt
As teens become adults, the world of loans and credit cards will open up to them. This brings a chance for a new conversation regarding how to manage debt and use credit wisely.
A 2013 study found that 85 per cent of university students in Canada have a credit card, and these cards can lead them into more debt than they can handle. As children become adults and move out into the world on their own, they will work towards becoming financially independent of their parents. But that doesn’t mean parents don’t have some great advice.
Your 20s are a great time for talking to parents about money; to sit down and ask advice regarding things like obtaining credit cards, car loans, and other forms of debt. With payments on loans, budgeting carefully becomes an even more important task, as it’s easy to forget when payments are due. Missed payments can quickly add up to a lower credit score, and it’s easy to fall behind.
Another major debt incurred by many during this decade is student loan debt. Combined with credit cards, this can leave graduating students with a large amount that needs to be paid off, and before that sets in is a good time for parents and students to sit down and discuss how best to approach it.
Although you may not be thinking about it yet, your 20s are a good time to buy life insurance. Rates are lower for those who are younger and have fewer health issues, and as a result you will have the policy in place later in life when it may become less affordable.
Graduating students will transition from part time to full time work, and as income increases, it’s time to put the first money aside for the future. This is the time to start contributing to an RRSP or TSFA, and increasing savings for big financial events in the near future such as a wedding or the purchase of a home.
Into Your 30s – Greater Financial Responsibility
Turning 30 is a landmark year for many people; most are finished with schooling and settling into a career. The end of your 20s and beginning of your 30s also brings some major financial changes.
According to a 2013 BMO study, the average first-time homebuyer in Canada is 29 years old. That means many people begin their 30s just having bought, or preparing to buy, a house, the biggest investment most people will ever make.
Other financial changes in your 30s may include having children. Statistics Canada reports that the average age of a first-time mother is 30 years old. New parents will have to deal with the financial issues related to taking time off work for maternity or paternity leave as well as how they will pay for childcare during working hours. Childcare is one of the biggest costs new parents will incur, and requires some adjustments to your budget.
Becoming a parent means that you now have to think not only of your own financial future, but also that of your children. Many people look towards starting a savings account for future education or other needs of their children soon after they are born. As your children grow, they will start earning an allowance, allowing you to begin the conversation about smart financial decisions. They may also get involved in potentially expensive hobbies such as sports, adding another monthly cost.
With the responsibilities of home ownership and parenting come more financial concerns as well – now is the time to write your first will, if you haven’t already. It offers a good opportunity to bring up the subject with your parents. Asking your parents’ advice on writing a will allows you to also discuss their own estate planning status. Do they have a will? What are their plans for settling their estate and handling final expenses? This can be an awkward subject, but bringing it up in the light of your own concerns regarding preparing for the unexpected can provide a more comfortable opening to the conversation.
Further concerns after marriage and starting a family include updating the beneficiary on your life insurance; this may mean starting a trust for your children. It’s a good time to also look towards other protection from the unexpected, such as disability insurance or critical illness insurance, which can ensure that your family is financially protected should you be unable to work due to illness or injury.
In Your 40s – Financial Stability and the Future
Most people in their 40s are becoming acutely aware that retirement is not as far off as it once seemed. A retirement savings calculator can be helpful to see how much you can expect to need based on the age you hope to retire. Many people in their 40s are settled into a career and feeling relatively financially stable. This can afford some extra income to be put towards an RRSP or other savings plan.
At this age, you may be seeing your parents prepare to retire, and this is a great time to discuss how they have approached retirement savings and whether or not they are prepared. A 2016 study shows that a large number of Canadians approaching retirement don’t have enough saved, and that’s a vital conversation to have with your parents as you start giving serious thought your own retirement. What kind of pension do they expect to see, if any? What do they have for savings? How do they plan to handle life on a more limited income? Framing these questions around your own plans for the future makes it easier to broach the subject; and it’s important to know whether or not your parents may need financial assistance from you in the future.
Another important thing to discuss with your parents is any plans they have for long-term care or assisted living in the future. One of the hardest decisions anyone will ever have to make is to leave their own home, so this is a sensitive but vital topic. Cost of long-term care can be very high, and three quarters of Canadians admit they have no financial plan to pay for long-term care if they need it. A good way to open this discussion, and to help with your own planning, is to ask your parents’ advice on their thoughts on long-term care insurance and whether or not their parents (your grandparents) needed to rely on it. It will start the discussion, without coming out and asking them specifically what their plans are for themselves.
Many people in their 40s will also be facing the cost of assisting their children with plans for post-secondary education. Before the tuition bills start coming in, it’s a good idea to know what you can afford to provide for your children and what savings you can draw on if necessary.
In Your 50s – Retirement Plans and The Empty Nest
In your 50s you should hopefully have a fairly good handle on your finances. Now is the time to ramp up contributions to retirement savings if you hope to retire by 65. For many parents, children have moved away from home by this point, relieving the financial burden of dependents, and freeing up some more income.
Depending on when you purchased a home and whether you moved again or refinanced, you may at this point be approaching the end of your mortgage. This is often a time when empty nesters may consider downsizing and making the most of the equity they have built over the years. That equity can be a big boon to retirement, though, so be sure you’ve talked over the decision thoroughly to be certain you’re selling at the right time.
If you haven’t yet, this decade will likely bring about one of the hardest financial discussions you will ever need to have with your parents; that of final expenses. Chances are it has already been on their minds, but for obvious reasons it’s not a topic that is easy to bring up. Planning for final expenses is about more than simply knowing how the costs will be covered. It’s also a chance for your parents to make clear to you their wishes, and letting them know you want to respect those wishes.
Funerals in Canada can range from a few thousand up to $15,000 depending on the arrangements, and plans that are made in a hurry after a passing can make that tab creep up. Planning ahead of time means avoiding uncertainty in an already difficult time as well as ensuring that everyone’s wishes are respected.
Your 60s – Ready To Retire
Retirement is usually expected to be around age 65, although this Statistics Canada study shows that later retirement has become more common in recent years. As you enter your 60s, you should have a fairly good idea of when you can expect to retire, and whether or not you are financially ready. These last years in the workforce are a chance to make a last push towards savings and take stock of your assets and debts.
At this point in your life it’s a good idea to make a plan for how you will budget when retirement comes. Look to eliminate debt as much as you can so that more of your savings and pension can go towards daily expenses – and towards enjoying the freedom of retirement! If travel plans are in your future, you may want to think about setting up a specific savings account from which you will fund your adventures.
Now is the time when the tables will be turned, and you will be having talks with your own children regarding your plans. Make sure they are aware of what you have set up in terms of insurance, long-term care planning, and estate planning.
Retirement and Beyond – Enjoying Your Golden Years
Retirement often brings the chance to enjoy the results of your years in the workforce, and with smart financial planning you should be able to relish the freedom to do what you want.
After retirement, you will find that your finances change. A financial advisor can help you to make sure you continue to spend at a rate that can be supported by your savings and pension. Many people choose these years to sell second homes and investment properties, downsize to a smaller home, and use the money both to create a legacy for your children and their children as well as to enjoy life.
Now is the time to review and finalize estate planning so that there is no question of who will inherit what, and ensure that your wishes will be respected by your family. With the details out of the way, you can focus on the well-earned relaxation that comes with retirement.
Learn to Expect the Unexpected
While you can anticipate when some big expenses will come along, some can’t be as easily predicted. Saving and planning throughout your life can ensure you are ready when financial hurdles pop up.
Some of those may include paying for a child’s wedding (or your own), taking a long-awaited vacation, or moving to a new home. It’s also difficult to predict unfortunate events like the loss of a job, a sudden death, or a debilitating illness that can deeply impact your finances. It may not even be you who becomes ill, but a family member or even a pet – vet bills can add up fast.
Smart financial planning will also ensure you’re prepared for big expenditures like home renovations, car repairs, or the need to buy a new car altogether.
You can’t always plan for every financial eventuality in life, but you can make smart decisions every step of the way to allow your budget handle any one of these unexpected events without a struggle.
The Legacy of Smart Financial Planning
Smart financial planning and the ability to have the tough conversations about money are something you can pass down through generations. From the day you first talk with your kids about money to the times you sit down with your parents to discuss financial plans, valuable lessons and a respectful trust will be established. The talks about money you have had with your parents will lead into the conversations with your kids as they grow, and will help them to be prepared for opening the dialogue with their kids in turn.
At every stage of life, tackling money questions before they can become problems ensures everyone’s financial stability. Talking about money and helping each other to make the right choices is a legacy that will continue across generations.