How to strategically sever financial ties with your adult children

Article content

Written by Aida Khajadourian

An unofficial survey conducted in 2023 found that a whopping 91% of Canadian respondents said their adult children do not need financial support to cover expenses such as groceries, mortgage payments, and rent as the cost of living rises. They answered that they are providing it.

Article content

Parents can provide this kind of support out of love for their child, but it should not be at the expense of the child’s path to financial independence.

Article content

Canada is experiencing the largest transfer of wealth in its history, highlighting the need to empower children and dependents to actively manage their finances through education and careful planning. By evaluating their financial beliefs, values, and practices, families can proactively promote their children’s financial independence and guide them toward their financial goals.

start the conversation early

Parents help shape their children’s financial behavior and attitudes. From an early age, children observe their family’s approach to money and learn implicitly from their saving and spending behaviors, lifestyle choices, and money discussions. Although approaches to discussing money may vary from family to family, educating children about money concepts is essential to preparing children for future financial success.

Parents who involve their younger children in financial discussions often find their children more enthusiastic and receptive to managing their finances as adults. This includes creating a budget for important purchases, such as a new cell phone, and making plans to invest your allowance or birthday money.

Article content

Article content

Establishing healthy financial habits

Developing healthy financial habits early can set young people up for success as they transition into adulthood. For example, parents should emphasize the importance of earning a good credit score and explain how responsible credit card use contributes to a healthy credit rating and increased financial freedom.

Teens and young adults should be educated about financial basics such as the power of compound interest. Saving and investing early can lead to significant growth over time, increasing the value of your investments exponentially.

For example, someone who consistently invested $400 per month starting at age 25 would see their portfolio grow to nearly $800,000 by age 65, using a compound monthly rate of return of 6%. If you start 10 years from now at age 35, you’ll have half that amount, or $402,000, by age 65.

It is therefore worth involving children in these discussions early on, as the full potential of compounding returns is only realized if you start saving and investing early and maintain this discipline throughout your life. there is.

Article content

Utilization of financial tools

There are more tools than ever to help individuals of all ages manage their finances. Online tools are not a replacement for the value and guidance provided by a wealth advisor, but they can help young people gain financial literacy and experience by equipping them with key concepts.

Robo-advisors, budgeting apps, financial podcasts and videos are just a few of these resources, but it’s important to distinguish between reliable and unreliable sources of information.

Families supporting children financially can utilize investment vehicles such as Registered Educational Savings Plans (RESPs), First Home Savings Accounts (FHSAs), and Tax-Free Savings Accounts (TFSAs) to ensure that funds are You can ensure that you are invested towards a goal or goal. . These tools allow parents and grandparents to contribute and have a more meaningful long-term impact.

plan strategically

Considering long-term and short-term goals allows young people to plan and take the necessary steps toward achieving their goals.

Article content

For many young people, short-term goals may include post-secondary education, starting a business, traveling, buying a home, getting married, or managing money. No matter what your plans are, identifying these goals and communicating them to your family will ensure they have the resources and support they need to reach them and stay on track. Masu.

Wealth advisors play a central role in these discussions, guiding parents to facilitate effective and productive conversations with their children. They provide agendas, resources, and guided discussions and serve as trusted advisors to ensure effective communication and strategic planning based on your family’s unique financial situation and goals.

Although some people may be uncomfortable with open communication about finances, it is extremely important when it comes to financial planning. Topics like prenuptial agreements, wills, and estate planning can be difficult to discuss, but addressing these issues in advance can save you from future problems and unpleasant surprises if things don’t go as planned. You can avoid surprises.

Ida Khajadourian is a portfolio manager and investment advisor at Richardson Wealth.

Article content