Here at Boomer & Echo we’re big fans of the robo-advisor model that gives investors the chance to build a low cost, diversified portfolio of ETFs and not worry about the hassle of buying, selling, and rebalancing on their own. Just set up regular contributions to your account and the robo-advisor allocates your dollars into a portfolio of ETFs built for you based on your risk tolerance. All of this for a tiny fraction of the cost of a managed portfolio of mutual funds at a big bank or advisory firm.
We have established partnerships with Wealthsimple and ModernAdvisor where Boomer & Echo readers get a $50 bonus just for opening an account. Now we’re pleased to add a third robo-advisor to our recommended list – Justwealth. What I love about Justwealth, and what sets it apart from the other robo’s in Canada, is its focus on RESPs – and specifically through target date portfolios, a unique solution that transforms itself automatically over time, eventually “maturing” in the year that your child will begin post-secondary education.
As with the other two robo-offers, Boomer & Echo readers who open a Justwealth account will receive a $50 bonus.
This Week’s Recap:
On Monday I attempted to explain to the anti-RRSP crowd why RRSPs are not a tax scam.
On Wednesday Marie cautioned readers to avoid costly add-ons and extras on housing and vehicles.
And on Friday Marie offered some advice to parents who are still providing financial help to their adult children.
Weekend Reading:
Greedy Rates lists 12 things credit card companies do that you ought to know about, but probably don’t.
Is it worth it? Squawkfox Kerry Taylor looks at the cost of premium gasoline, bottled water, and brand name over-the-counter medication.
A sensible mortgage broker says the new mortgage stress-test could be positive for Saskatoon home buyers:
“A smaller mortgage means smaller mortgage payments, so instead of being house poor you can enrich your life in other ways.”
A rebuttal to everyone who hates on new cars.
Million Dollar Journey compares the top prepaid wireless plans.
Michael James has a few concerns about Prime Harvesting, a strategy on how to handle your portfolio in retirement.
How does the TFSA benefit low income people as well as the wealthy? Rob Carrick breaks it down in this video:
Is it safe to get excited about investing again? A new U.S. service targets beginner investors with simple products and catchy names.
Meanwhile in Canada, Justin Bender explains how to build an ETF portfolio at TD Direct Investing.
How do indexers do better than average? Cullen Roche uses a fantasy football analogy to explain.
Can behavioural economics make winning strategies? Expert Richard Thaler explains how:
Finally, a cautionary tale about the taxman, the bank, and the lost $12,349.21.
Have a great weekend, everyone!
Rodney and Carol retired in their early sixties. A few years later their youngest child, Greg, lost his graphic arts job and decided to start a small manufacturing business. To start the company, he got his parents to invest $50,000. They wanted to help their son succeed in his dream, so they made the investment. But it wasn’t long before they were asked for another $50,000, then another and another. More than $250,000 additional dollars later the business tanked and Rodney and Carol have depleted a sizeable portion of their retirement account. Consequently, Rodney, now in his seventies, is working as a consultant just to make ends meet. And, he is doing so at a time in his life when he should be enjoying his financial independence.
Rodney and Carol literally sacrificed their own happiness and financial well-being for their son.
When Gloria retired from her job as a kindergarten teacher, one of the things she looked forward to most was spending more time with her grandchildren. She offered to help out with occasional childcare. Her daughter-in-law wanted to return to work and leaped at Gloria’s offer, and she soon found herself enlisted as a full-time free nanny.
Her grandchildren, a boy and a girl aged four and two, were active, healthy and rambunctious. Riding herd on them took all of Gloria’s energy and she found herself resenting the assumption that she’s always available.
“I messed up. I offered – and gave – way too much. Now I’m in a place where I feel guilty trying to back out. I don’t want to hurt our relationship.”
Gloria needs to tell her daughter-in-law that she can help with the kids some days, but not all days. It’s too much for her watching them every day.
Shelley and Andrew were ready to sell their 4-bedroom home and retire to the Maritimes where Andrew had inherited some property. Their plans were put on hold when their 34-year old son, Mark, lost his job and asked to move in with them until he secured another position – bringing with him his wife and two toddlers.
It’s been over a year now and Mark has been unable to find suitable employment.
“A few months later we would have been living in our retirement home and it wouldn’t have been possible for them to move in with us.”
It’s tough to say no
Parents learn to say no fairly quickly when their toddler begins to explore the world – to protect the child, to teach right from wrong, and to help him or her emerge as an independent adult.
Why is it that it becomes a big challenge for new, and soon-to-be, retirees to say “no” to their adult children?
Parents often find it difficult to tell their adult children no even when they want to. You might worry about hurting their feelings or creating conflict in your relationship.
You may be concerned about your child’s financial well-being. You may not want your child to struggle financially, especially if you once did.
These are all good reasons. But, how does an adult child learn to be self-sufficient or learn to live within a budget if the parents are always willing to hand over money? And, if your children are used to you saying yes all the time they may find it hard to accept a negative response.
If your adult children are asking for something, whether it’s babysitting services, money, or something else and you need to say no, say it clearly. Don’t hint around that you’re busy or you’ve had a lot of expenses lately. Just say “No, I can’t help you with that.” Provide a brief explanation if you want to, but you don’t need to justify your decision.
Related: Kids bailing out parents
Learn to say no with the same enthusiasm as the average two-year-old.
Think about it. Have you experienced setbacks, disappointments and hardships? Did you deal with the challenge and then get on with your life? Contrary to what you believe, your child can, and will, figure it out too.
Initial considerations
Can you really afford to help your child?
Why does your child need money? Is it a short-term crisis, or a chronic problem?
You are not doing your children any favours if they’re always coming to you with their problems and bad luck stories.
If you have children who have moved back home be crystal clear about your expectations for their eventual financial independence that works for both of you.
You have the right to decide what to do with your time. If you are always available to babysit your grandchildren or take care of the family pet, you may be creating an expectation you will not always be able to maintain.
Final thoughts
I’m not suggesting that you should never help your child. If they are typically financially responsible, but have fallen on hard times, of course you’re going to want to be there for them. But they shouldn’t be relying on you as a cash machine whenever a money problem comes along.
It’s natural to want to help, and you may be able to afford to. But, the reality is that you are not doing your kids any favours by always bailing them out. Always coming to the rescue can jeopardize both your child’s initiative and coping skills, and your own retirement security. You have less time and resources to prepare for your own retirement when you always put your child’s needs before your own.
Give financially to your adult children if you choose, but remember it’s a gift, not an obligation or reason to put your own plans on the back burner. Parents do not owe their children the lifestyle they may have become accustomed to. Instead, you can give emotional support and financial mentoring, and help them find alternative solutions.
One day you’re not going to be around anymore. Do you want your kids to have to learn to deal with their problems when they’re 60?
There have been numerous studies showing how people who pay for their purchases by credit card spend more money than if they would have paid by cash because they upgrade or buy impulsively. But, a lot of people pay off their balances in full each month and use their credit cards for various reasons – tracking spending, rewards and other benefits – so you could say, what’s the harm in spending a few extra dollars each month?
What actually adds up a lot more are the costly options that are added on to large-ticket items, especially when they are financed over several years. These are most often offered on new cars and homes, which are rarely paid for in cash.
Salespeople are well versed in consumer psychology. When a customer is financing a purchase, it’s easy to upsell or add upgrades and accessories. Perceptions change on what people can afford when they are making smaller monthly payments.
Related: What I learned from working retail
Take a look at this MSN story which details new car features that are often purchased at the dealership, but are not worth the money.
Reframing the cost
Positive reframing is a way of viewing a concept in a more positive way.
Take a vehicle appearance package that adds $1,000 to the price of your new car. If you are financing your purchase this might add about $15 to your monthly payment. By reframing, that $1,000 price doesn’t sound too bad when it’s broken down into smaller increments.
Car loans are now tending to be stretched over much longer terms – 6 to 7 years rather than the previous 3 to 4 years. This keeps payments down and makes vehicles, and their add-ons, more affordable.
The show home enticement
There’s something appealing about buying a brand new house – you get to pick out the countertops, appliances, floor coverings, etc. You want to include features and finishes that reflect your personal tastes and lifestyle.
Many developers advertise their houses at comparatively low prices to get you to come and have a look. Once there, you become enamored with the show home model which is loaded with expensive extras. The base home may look very different and the advertised base price is going to rise considerably as you wade through the endless choices of options and upgrades that your builder allows you to select and you decide that certain extras are essential.
By purchasing upgrades through the builder you may get a better deal on pricing, but you are rolling the cost into your mortgage as opposed to paying out of pocket. Make sure any upgrades fall within your mortgage guidelines. It’s easy to overextend yourself.
Make sure the prices are fair. Some popular upgrade choices are profitable to builders and can be overpriced.
It might make more sense to make certain changes after you purchase your new home. Cosmetic features in particular – paint, lighting, window treatments – can be changed later on.
Final thoughts
Consumers prefer to complete their purchase in one fell swoop rather than purchase multiple accessories separately. Hence their willingness to upgrade car packages and home upgrades all at once in one bundled purchase. It’s just less of a hassle.
Also, some upgrades and extras can be worth the investment by adding value and enjoyment.
Sometimes upgrades on new- build homes are more cost effective if done at time of construction and can be difficult to change later on.
Take some time to research after-market prices to see how they compare. Wait a while to see if you really need the add-on, or if you are just caught up in the buying process.
Learn how to negotiate. Don’t be afraid to ask for some extras at no charge.
You can save thousands of dollars (and interest costs) if you only purchase the features you need or truly want.