I’m going to tow a hard line on this blog – putting your kids financial needs before your own isn’t good for their future, or yours.
I’ve been a financial advisor for almost 30 years now. And after consulting hundreds of families over those years, do you know what surprises me most? (When, actually, it happens so often it shouldn’t surprise me a bit.)
The pains parents will go through to help their kids with money
That drive is so strong in parents that it often destroys both (a) their kids’ financial independence as adults, and (b) the parents own retirement plans.
But I get it. Parenting is hard. God knows I’ve made my mistakes, I still do. But as a parent – who’s also a financial advisor with 30 years’ experience – I’m confident talking about this aspect of parenthood.
But first, a little about me growing up.
I was raised in a modest household; I paid my own way through university, bought my first home (along with my late wife) at age 24, and started my own business at 27. And I did it all without financial assistance from my folks.
My family’s modest means and my own personal drive instilled self-sufficiency in me. And I believe that’s a must for any child; understanding the value of a dollar and the fact that money is never free.
To this end I’ve created a list of the ways parents spoil their kids and ruin their retirements.
1. Keeping the family finances a secret.
In too many homes, family finances are a taboo subject. I couldn’t disagree more. Family dinners, in fact any family time, are the perfect time to teach your kids about money.
My late wife Mary and I did it… sitting around the dinner table listening to our kids’ and injecting a life lesson or two at the right opportunity. We freely talked about what we earned, how much we spent on food, soccer, vacations and how much we saved. We never hid a thing.
It’s like having “the talk” (another uncomfortable subject). Yes, of course, some things can be learned in school. Unfortunately, financial literacy doesn’t’ seem to be high on most school’s curriculum. That leaves it up to parents.
If not, a financially ill-equipped child will keep coming back to the Bank of Mom and Dad again and again – because they haven’t been taught not to.
2. Ignoring the benefits of work
When kids are old enough, part time jobs during the school year, and full-time in the summer, are mandatory. At least they were in the Dri home.
Work teaches kids the lessons of trading time for money.
Kids need to realize that if they earn $10 an hour and a pair of running shoes cost $200, that means working 20 hours to buy those shoes. Are those kicks worth 20 hours out of your life? Or can those 20 hours buy something better, something smarter? What’s the trade-off?
Without this lesson, that only work experience can provide, they’ll always be asking for money. And those asks will get bigger as they get older.
3. Private school
A typical private high school in Toronto would cost you about $25,000 a year per child. University costs approximately $10,000/annum per child – discounting living expenses if the school is out of town.
Let’s break that down assuming you have two children:
| Private High School | 2 children | 6 years Grades 7-12 |
$25,000/annum each | $300,000 |
| University | 2 children | 4 years undergrad studies | $10,000/annum each | $80,000 |
| Total after tax dollar cost (at a marginal tax rate of 50%): | $380,000 | |||
| Pre-tax dollars needed (approximately): | $760,000 |
What does this mean? For a taxpayer in the 50% tax bracket, they need to earn about 760k to net 360k.
You need to ask yourself: Is this realistic? What comes first, their private vs. public school education or your retirement? Only you can answer that… but a financial advisor can help run your long-term retirement projections so you can make an informed decision (and not “We’ll worry about that when the get there.”).
4. Buying the kids, a house
With housing prices sky high in the GTA, it’s almost impossible for younger people to enter the real estate market. With an average price of a home around $1,000,000, a down payment of about $200,000 is required just to get in.
What does that mean?
Many parents are taking out a first or second mortgage on their principal residences to raise that down payment for their kids. But is that the parent’s responsibility?
You might not like my answer.
It’s – NO.
Seriously, no. That doesn’t mean you shouldn’t help, period, it’s just that it’s not your job. Before buying or helping to buy the kids a house, work with a financial advisor and run the numbers. Can you afford such a huge expense? Many parents realize that financing their kids’ home will mean reducing their retirement plans, but is that fair? It’s a huge sacrifice – and will your kids appreciate a “free” home as much as one bought with their own money?
5. Funding your kids’ lifestyle after they move out
It happens at least once a week. My team receives a client who wants to withdraw
from their retirement pool for an expense their kid has incurred. We’ve seen everything from “Mom, I need $5,000 for a vacation – I’m exhausted” to “Dad, I need $50,000 to buy a motorcycle – they’re a great investment.” And worse.
Financing your kids’ “fun” only encourages more visits to the Bank of Mom and Dad… which is not fun for you.
Why do parents spoil their kids and ruin their retirement?
From what I’ve seen, it boils down to one word.
GUILT.
I know I’ve experienced guilt as a parent, and I think you have too. We all have.
Me, I feel guilty about all the hours I spent at work and not at my kids’ recitals and sporting events. Now that I’m a widower, I feel doubly guilty and feel the need to make up for all those times mom was there, and I wasn’t.
Some parents feel guilty about being divorced or raising kids in households where the family across the street had a nicer house and a newer car. The list goes on.
There’s a feeling that this guilt will go away if you just throw money at it. I know I’ve spent money we didn’t have on vacations to prove I was a good parent.
I can’t stop parents from feeling guilty. It’s in our DNA. But I can offer a suggestion: before giving the kids financial support, ask yourself these three questions – and be honest:
- Can you really afford the expenditure?
- If you can, should you?
- What are you teaching the kids when you give them money?
Before you dip into your ‘future fund’ to give your kids money, give me a call. I’ll run your retirement projections and determine if you can really afford it, and its impact on how your kids manage their own financial future.
But first, close your eyes and picture your retirement – do you see yourself relaxing at your own cottage, or envying one of your kids motorcycling across the Trans-Canada?
I know what I see for me. And I won’t feel guilty for one second.
The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.
Dri Financial Group’s proprietary Wealth Navigator Process is designed with you in mind.
Its structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.
We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
—
Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.
If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.
- Subscribe to our Never Retire Newsletter
- Contact us to order a complimentary e-book
- Check-out our latest Wealth Navigator Podcast
- Follow me on LinkedIn
source https://richarddri.ca/will-spoiling-your-kids-ruin-your-retirement/
Dri Financial Group 