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Our Family is Our Asset, Liability and Legacy

Like it or not, we're all involved in running the 'family business.' We worry that our parents might outlive their retirement savings. We're comforted by the thought that family members would probably bail us out if we got into money trouble. We strive to help our children financially, and we'd like to bequeath them at least part of our nest egg. In short, our family is our asset, liability, and legacy.

Now here's the contention: It's time to build this notion into the way we manage our money. Here are just some of the reasons why:

Raising Children

If your children grow up to be financial loafers, you may or may not rise to the rescue. Depending on what you choose, your children could turn out to be your greatest financial liability. Don't want your adult children swimming in credit card debt, missing mortgage payments, and constantly asking you for money? Your best bet is to make sure problems never arise by raising money-savvy children. That's trickier than it seems.

Children grow up spending their parent's money, so it's almost inevitable that they will have a skewed financial outlook. After all, for children, all purchases are free, so why should they fret about the price tag or control their desires? A good tip for parents with younger children is to make your children feel like they're spending their own money. Give them a candy allowance when they are younger, or maybe a clothing allowance when they are teenagers, and insist they live within this budget. This way, instead of you constantly saying 'no' to your children, they will learn to say 'no' to themselves.  There's a big difference in the subliminal lessons being learned in either case.

Launching Adults

Once your children get into the work force, you want them to get into the 'virtuous financial cycle' where they are steadily building wealth. If an adult has a solid understanding of how to budget and plan, they'll make better decisions when determining the mortgage they can afford, what type of car to drive, and how much money might be needed for future expenses like retirement.  

Another good lesson to equip adult children with is an understanding of interest rates, credit card rates.  If your kids understand how hard it is to make 20% on your money, year over year, they'll be way less likely to incur interest costs that are essentially the inverse of this. The sooner your 20-something children get into this virtuous cycle, the easier it will be for them to meet their goals and less of a financial drain on you.

Closing

To that end, encourage your children with your words and with your fine example. For adult children, a few financial incentives may also help. If you had planned to provide money to adult children at specific milestones, think about setting financial targets for your children that coincide with your wishes to help. For example, tell your adult child, "if you can save X amount of dollars for a home by X date, then we will provide X towards your TFSA, RRSP, or down payment."

This doesn't mean you intend to fund their retirement instead of your own, but it will help to build the right mindset and behaviour towards your children's personal finances.

- Brandt Butt, Investment Advisor, CIM

Brandt Butt is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Brandt Butt who is an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

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