Teach your kids about money

Teaching kids about the value of money, saving and financial responsibility is your job as a parent.  If children are given opportunities to learn money management skills, we empower them to discover what money means to them.

Kids today think that money comes out of a machine – the wonderful, magic machine known as the ATM.  They have never had the opportunity to develop an understanding of how hard it is to earn money, how quickly it is spent and just what the cost of living really is.

Chances are that your children are going to have to work for a living. And if not properly prepared, our kids will likely spend themselves into deep trouble as soon as they are able to qualify for their first credit card.

Here are some things you should do (or not do) the give your children a head start to financial literacy.

Get your child a piggy bank.  Deposit coins when you want to reward them. They won’t understand the value of money at such a young age but it does help them develop a sense of ownership, pride and accomplishment as it fills. Let them make their own choices as to when and how to spend the coins inside. Our children have two piggy banks – one for saving and one for spending.  Each time them have money to deposit, it must be divided equally between the two.  We are trying to teach them the difference between saving to spend AND saving to save.

Have your child open a savings account. Many banks offer a special account for young children which include bankbooks that let the child see their money grow.  Each month your child will see that having money in their account will earn them more money. 

Do your banking with the kids. Tell them what you are doing, what bills you are paying and why.  Explain what you are saving for and why you can’t just go out and buy it right now.  Teaching them about budgeting and savings will do a lot to show them that how the financial world really works.

Provide your child with an allowance when you start to expect them to pick up and put away their toys, help with the dishes or fold laundry.  Be clear about your expectations.  They need to know what tasks they must do in order to receive a certain amount every week -- to save and/or spend.

Let your kids earn extra money.   This doesn’t mean you have to pay them clean their room.  Allow them the opportunity to do additional tasks around the house like washing windows, trimming the hedges, vacuuming out the car.  I’m sure you don’t really like doing these tasks either so they should be worth at least a couple dollars.

Encourage older kids to look for additional work and other means of generating income outside the home: Babysitting, cutting grass, shoveling snow, delivering papers etc. Let them feel the satisfaction of being entrepreneurial at a young age.  You’ll be surprised how it makes them feel.

Teach responsibility. If your child can't be bothered to put their toys away and they get stolen, don't feel the need to replace them. Make them save their money to buy another. It's hard for the parent, but it is great lesson for your child to learn.  They need to realize that things cost money and that it often takes time and hard work to get the things we want in life.

Enhance their entrepreneurial skills.  Perhaps you can help them with a car wash or lemonade stand.  Teach them that nothing really comes for free and explain that they must pay for the supplies from any earnings that they make

Don't give in to everything.  Kids ask for things all the time.  You shouldn’t feel guilty about say no. It's a very important lesson for your children learn the difference between want and need.  We as adults need to focus on this more often as well.  Now, as a parent we do your best to provide the things our children need like food, clothing etc.  However, they don’t need the newest toys or electronics.  This is a very hard lesson for all of us to learn and some people never really get it, so be sure to teach your children at an early age.

Let them make mistakes.  It’s important that we allow our children to make mistakes.  After all, we learn more from our mistakes that we do our victories.  Let your children find out that there is smart spending and silly spending.  Try not to micromanage their money.  It’s better for your children to make mistakes now than later when they are dealing with higher ticket items.

As parents, we can’t rely on the school system to teach our children about proper finances.  We must take the responsibility upon ourselves if we want our children to succeed.  If you have a hard time with it yourself, perhaps you may need to call on the services of a Financial Planner to help you learn as well.  Many Financial Planners would be happy to help.

Money Saving Monday - Couples Finance

When I got married, my wife and I both worked full-time.  We agreed that, when we had children, she would stay at home.  With this in mind we both knew that we would eventually be a one income family so we decided to combine our finances from the beginning.  We moved to joint bank account and haven’t looked back. It has worked for us but, for many of my clients, this becomes a very delicate subject. 

Here are three options to consider.

Maintain Separate Accounts

Couples maintain their separate finances, and split joint expenses as they come in. This may work well for couples who value their financial independence, but can be difficult in other ways.

Sorting out how to divide every expense takes some effort from each partner and can cause confusion.  Also, budgeting as a couple can be complicated when you both maintain separate accounts.

How you decide to arrange your finances as a couple can affect your individual credit reports.  If you have a credit card together, only the primary card holder will develop a credit history by paying it off on time.

If you are thinking about expenses using a joint line of credit or a joint credit card, don’t forget to consider your responsibilities as a joint borrower before making your decision.  If you co-sign a loan, you become equally responsible for repaying the loan.

The Combination of Separate Accounts and One Joint Account 

With this approach, couples use their personal chequing accounts for individual expenses, but open a joint account to use for shared expenses like groceries, rent or mortgage payments, and utility bills.

Couples that choose this option can split their shared expenses easily.  Because individual purchases are separate, though, budgeting as a couple can be more difficult.

If you choose this method, you need to decide which expenses will be paid for jointly, and how much each of you will contribute to shared expenses.  Will you split them 50/50 or contribute a percentage based on your incomes?

In some cases, having separate spending accounts can avoid problems. I’m talking about problems that face many people when they need a few bucks to go out with the girls (or guys) or want to buy something on a whim.  In this situation all income goes into the joint account and the couple’s determine how much spending money goes into their individual accounts (kind of alike an allowance) and at what intervals.  This can be the same amount of money for each person (recommended) OR a percentage of income.  Just remember that if you decide to go with the percentage of income because it means YOU get more spending money, things change, people lose jobs, get better jobs or get raises and you could find yourself on the opposite side at some point in the future.  Also, one very important thing to know is that no one has to justify where their spending money goes!  Whether you decide to save up for something or just spend it the same day you get it – that’s up to you and you alone.  If you spend it, you don’t get more until the next time.

One Joint Account

With this approach, couples combine their incomes and pay all expenses—both joint and individual—from their shared account. This makes tracking expenses very simple and helps build an open and transparent relationship. However, this arrangement can be hard for people who enjoy their financial independence.

If you choose this method, consider whether there will be some exceptional expenses you handle individually, such as paying off debt that you had before you entered the relationship. 

There are many things for couples to consider when deciding how to arrange their finances.  I suggest seeking the advice of a Financial Advisor as their expertise in this area may avoid potential conflict down road.

Building financial security for Canadians with disabilities

Registered Disability Savings Plans

Why RDSPs are the best way to save

1. Anyone can contribute to an RDSP with the written consent of the account holder

2. The total lifetime contribution for each beneficiary is $200,000, with no annual contribution limits

3. Contributions can be matched, based on family income, with up to $3,500 a year in Canada Disability Savings Grants and up to $1,000 a year in Canada Disability Savings Bonds

4. The money you contribute grows tax free

5. Savings and withdrawals do not affect federal and provincial income-tested benefits

Who qualifies for an RDSP?

You qualify to be an RDSP beneficiary if you are eligible for the Disability Tax Credit, a resident of Canada, less than age 60 and have a valid Social Insurance Number.

How to open an RDSP account

• If you haven’t already, apply for the Disability Tax Credit (see www.cra-arc.gc.ca/disability)

• See your financial advisor to open an RDSP

Take advantage of Government help

• Canada Disability Savings Grant - Through the CDSG, the Government deposits money into your RDSP to help you save, providing matching grants of 300%, 200% or 100%, depending on the amount contributed and the beneficiary’s family net income. The maximum is $3,500 each year, with a lifetime limit of $70,000.

• Canada Disability Savings Bond - Through the CDSB, the Government deposits

money into the RDSPs of low-income and modest-income Canadians. If you qualify for the

bond, you could receive up to $1,000 a year, with a lifetime limit of $20,000.

Withdrawing your money

RDSP withdrawals must begin by the end of the year you turn age 60. You may withdraw funds earlier, but be sure to note that once a withdrawal of any amount is made, all federal grants and bonds paid into the RDSP in the previous 10 years have to be repaid.  Withdrawals will consist of non-taxable contributions, taxable Government monies and taxable growth.

How your money can grow: an example

Jack, whose family income is less than $21,287 a year, opens an RDSP at age 19 and contributes $1,500 a year until he is age 49, investing the money in a balanced mutual fund that returns 5.5% annually. Even though his annual contributions only total $46,500 ($1,500 x 31 years), when those contributions are combined with Canada Disability Savings Grants and Canada Disability Savings Bonds, by age 50 Jack will have accumulated $398,891.

• Your annual contribution of $1,500 = $46,500 total

• CDSB of $1,000 a year to a maximum lifetime amount of $20,000

• CDSG of $3,500 a year to a maximum lifetime amount of $70,000

• Results in $398,891 plan total

Top 3 tips to maximize savings

1. Start saving early. Make it automatic by enrolling in a pre-authorized chequing program.

2. Contribute every year to get the maximum annual Canada Disability Savings Grant and Canada Disability Savings Bond, if applicable.

3. Plan your withdrawals to avoid federal grant and bond repayments.

To open an RDSP, please talk to your financial advisor.  If you know of someone who could qualify, be sure to send them this article.

The New Pooled Registered Pension Plan

The pooled registered pension plan, or PRPP, is a new savings vehicle being introduced by the Canadian government. Here's what it might mean for you.

On November 17, 2011, the Canadian government introduced legislation that will give Canadians yet another way to save for retirement. The pooled registered pension plan (PRPP) will be targeted to people whose workplace doesn't offer pension plan options -- mostly small to medium-size businesses and the self-employed. While the details are still being worked out and may change, here are five things you should know about this new savings vehicle.

Why introduce the PRPP?
Many Canadians -- an estimated 3.5 million, mostly people who work for smaller companies that don't offer any employee retirement savings options -- don't have any sort of pension plan. The government wants to offer us yet another way to save for retirement.

How will the PRPP work?
If small to medium-size businesses use a PRPP, they'll automatically deduct an amount from employees' paycheques to put into this savings account. However, businesses won't have to top up funds through the PRPP program, and employees can opt out of participating, which leads some experts to question the value of the program as opposed to a simple RRSP.

Where does the PRPP money go?
PRPPs will be offered to small businesses by the usual financial suspects: banks, insurance operations, fund companies and, likely, anyone else who offers financial products. Money would be put into an account and then the institutions would invest that dough in the hopes that it will grow. Because it's the financial institutions doing the investing, some people say this will make PRPPs cheap and easy to set up. But that remains to be seen.

What will be the investment strategy?
That's still unclear, but since its retirement savings we're talking about, it's highly likely that plan administrators will invest the cash in balanced funds -- funds that typically hold 60 per cent equities and 40 per cent bonds. That lets people grow some of their money (via the stock portion) and protect against downturns (with bonds). Usually, financial institutions offer plan members (the company) and its employees an array of options related to risk tolerance.

What are the drawbacks to the PRPP?
Many experts say this is nothing more than a glorified RRSP and that if people don't have a registered account now -- and many don't -- then they won't suddenly start using a PRPP. Another option for the government to look at was increasing employee contributions to the Canadian Pension Plan, which people can't opt out of, but they chose instead to give business owners the option to help their staff save via top-ups.

It's still too early to say exactly what the PRPP will look like, or if anyone will buy in, but having more savings options is never a bad thing. Depending on the uptake, smaller companies could offer this as an extra incentive to prospective employees. At the very least, those who do use it will, hopefully, have a larger nest egg come retirement time.

New Years Resolution

Christmas Bonus

Christmas comes twice a year for some Canadians - or so they think.

The three-paycheque month is viewed across this country as some type of well-earned bonus that comes through the sleight of hand of being paid every two weeks as opposed to twice a month.

Instead of 24 paycheques a year, you get 26. When you get that "lucky" month depends on when your two-week pay period is calculated. For whatever reason, perhaps because people budget on a monthly basis, those two extra paycheques are considered gravy by many workers.

Most people budget on a monthly basis. We know people have their monthly mortgage payments and certainly other expenses are probably monthly too but in most cases your paycheque is coming on a biweekly basis

Approximately 59% of Canadians get paid on a biweekly basis, opening up the possibility of the three-paycheque month.  The good news is that 89% of people go for direct deposit - something that probably goes a long way to eliminating that feeling of money burning a whole in your pocket.

The problem with being paid on a biweekly basis is that many people feel they have extra money to burn.  After all  you had already allocated your regular two paycheques towards your mortgage and other bills. So, bonus – right?

If your thinking is that you've got some sort of free month, then it likely means you are not doing a good job of coordinating your income with your bills.  The problem is that this is a major mistake, and at the end of the day that third paycheque should probably be thought of more as an opportunity.

 The other time people think money is free is RRSP time when they get their taxes [or refund] back from the government.

If you're complaining about not having enough money, use these opportunities to liberate what is yours. These are the times you should be dealing with your debt, if you are like many Canadians, topping up your savings or some combination of the two.

When you think about all the unpaid credit-card balances, leftover RRSP room, unopened registered education savings plans and underfunded tax-free savings accounts, there are plenty of places to put those extra paycheques.

In some ways, that extra paycheque is almost a bit of forced savings. It's yours. Do what you want with it, but why not make it go a lot further by investing it?

Of course, it is December. So if this is your three-paycheque month, Merry Christmas.

Can I stay home with the kids?

One of the big questions many new parents are faced with has to do with deciding whether or not one of the parents should stay home with the child. Obviously, if you’re accustomed to living on dual incomes, the thought of giving up an income may sound like a daunting task. Even so, if you sit down and crunch the numbers, you may find that it might be more doable than you thought.

The True Cost of Working

When you think about it, your job not only provides income, but it likely creates some expenses as well. If you were to decide to continue working with the child, you’ll probably create additional expenses in caring for the child. On the other hand, if you were to stay home, you would also eliminate many work-related expenses. Some of the expenses you may have if you decided to continue working with a child:

·                        Child care: Depending on the level of care you require, you’re looking at anywhere between $400 and $700 per month per child. It isn’t uncommon to spend upwards of $8,000 -$10,000 each year on full child care during the child’s early years.

·                        Food and Beverage: While you can save money by taking your own lunch and drinks to work, most people end up grabbing a coffee or a lunch on the go while working. Even just $5 a day on lunch adds up to about $1,300 each year.

·                        Transportation: This varies greatly depending on how far you have to commute and whether or not you have public transportation, but even if you spend just $25 each week for transportation costs (gasoline, bus, subway, etc) you might be spending another $1,300 each year just to get to and from your job.

·                        Odds and Ends: If you’re in a profession that requires certain attire, you may need to spend money on clothes or dry cleaning. This can add another few hundred dollars a year. Your job may also require certain licenses, professional fees, or continuing education courses that could tack on additional expenses annually.

As you can see, there is more to that second income than meets the eye. Most people will think of the paycheque that comes with the job and assume that’s the bottom line, but there are many other factors to consider. While giving up that job may result in a loss of income, if you consider the expenses you will also give up, the end result may not be as painful as you had suspected.

The Non-Monetary Benefits

While all of this discussion about money is good, you have to think about the other benefits tied to staying home with your child. Money can’t replace the time spent with your children, and if the bonding aspect of parenting is important to you, this can factor in greatly when determining whether or not you can give up an income. Everyone is different and your priorities may lead towards one direction over the other, but don’t overlook the non-monetary issues when making this important decision.

The Bottom Line

There’s no right or wrong answer, and as you can see, it isn’t as straightforward as deciding whether or not you can live with one less paycheque in your pocket. Depending on the type of job you have, how many hours worked, and how much money you make, you may reach the conclusion that it’s impossible to be able to provide for your family if you give up this income. On the other hand, you may find that after factoring in the expenses related to working and the other benefits of staying home, you’re giving up a lot less than initially thought.

So, take your time and go over your options carefully. The decisions you make will significantly impact your family, so it’s important to take everything into consideration. And if you do find that you can afford to stay at home, you can find plenty of assistance at Stay-at-Home Parents site.