Many Boomer and GenX parents are both puzzled and frustrated by their children’s finances. Are kids these days really blowing money that could be used for a house down payment on lattes and avocado toast?
Acknowledge that times of have changed
One of the main points of contention between Boomer or GenX parents and their young children is the lack of understanding about how much the world has changed over the past 30 years. Where you may have been to work summers to pay your university tuition, or qualify for a mortgage with the salary of your first job out of school, most young people can’t.
As post-secondary tuition and real estate prices have skyrocketed, Millennials and GenZ have gotten caught in a perfect financial storm. They’re graduating in the red only to enter a competitive job market with low starting salaries and no pensions. They barely have money to make rent after they pay their student loan bills. With nothing leftover to save, they’re missing out on getting a foothold in the real estate market or investing for retirement.
When your children speak up about the challenges they’re facing with money, hear them. Before anything else, they need to know you see what they’re going through. They don’t want to be blamed for lattes or avocado toast. They want their parents who have supported them their whole life to continue to do so, and that starts with listening.
Help young adults develop good financial habits
When you hear where your young adult children are struggling with their finances, you’re better equipped to give them financial advice that will actually help.
Many young people are so daunted by the task of saving and investing for retirement, they don’t do it at all. Let them know that even if they only have $50 or $100 each month to spare, it’s worth it to get started in the stock market. Help them choose between a TFSA and RRSP so they can really start building a nest egg for themselves.
Also take the time to help them draft a budget, explain to them how a credit score works, and how to manage debt.
Remember, good financial habits probably come naturally to you after decades of managing your money but your kids are new at this! Teach them about money the same way you taught them to walk or to read.
Speak frankly about financial mistakes
One of the reasons talking about money is so fraught is because many people feel a lot of shame when they screw it up. This is especially true if they have to tell their parents about their mistakes!
Your children idolize you and want to make you proud. They may not be sharing their entire financial picture because they’re afraid of how you’ll react if they confess they have thousands of dollars in credit card debt, or they made a bad investment on a stock IPO that went bust.
One of the ways you can build trust is to share your own money mishaps. It can be hard to share moments where we were less than perfect, but if you’ve learned from your mistakes, you can pass on the lesson to your kids so they don’t repeat it. Sharing times where you’ve gotten into trouble with debt or had an investment sour will also show your children that financial mistakes are something you can recover from.
Just give them money
Yes, you read that right. If you can afford it, reach into your own pockets to help your adult children out financially.
I know you might be tempted to teach them to “stand on their own two feet”, but this isn’t possible if they’re drowning. Many parents worry that if they help out their adult children too much they’ll never learn to be financially independent. In reality, withholding financial support can actually be sabotaging your children from ever enjoying any financial security.
If your child is struggling under hefty student loan payments, high childcare costs, and low salaries, they can’t “get better with money” because there is simply no money to manage. If you can gift your child a down payment, help them pay for their wedding, babysit your grandchildren so no one has to pay for daycare, or even can pay off your child’s credit card or student loan debt, do it. It will help get them to a place where they can actually start gaining some financial traction.
The only thing to keep in mind is not to help out your adult children to the detriment of your own finances. Some parents are overly generous and will bankrupt themselves to pay for their kids’ education or other needs. You cannot sacrifice your own financial security for your kids, it will only create the need for them to bail you out later.
Related: Leave a legacy before the will is read
Managing money and achieving financial security is hard no matter what your age or what generation you’re from. The best way to help each other is to recognize each other’s struggles and work towards a better outcome together.
Bridget is the founder of Money After Graduation, a financial literacy website dedicated to empowering Millennials and GenZ to better manage their money.
Despite its many flaws, Aeroplan has been my go-to program for flight rewards for the past few years as our family began to travel more often. I know the pain points well: high fuel surcharges on Air Canada flights, lack of available award seats on flights (especially for a family of four), less than ideal routes on Star Alliance partner airlines, long customer service wait times, the list goes on.
But with Aeroplan we took our family of four to Scotland and Ireland last summer for 240,000 miles plus just a few hundred dollars in fees & taxes (connecting in Chicago via United Airlines). We’ve also redeemed miles for trips to Maui and to Vancouver and believe we get good value from the program.
Air Canada (along with TD, CIBC, and Visa) bought Aeroplan in 2018 and vowed to make significant changes when it relaunched the new program in 2020. Like many Aeroplan members, I was anxiously waiting for a preview of these changes to see what a reimagined Aeroplan program would look like.
We got a sneak peek of the Aeroplan relaunch this week. The early reviews were mixed, but mostly positive. I summarized the good, bad, and what remains to be seen of Aeroplan’s new program on my Rewards Cards Canada blog. Here are the big positives for the new program, which launches November 8:
- No more fuel surcharges on flight reward tickets
- Every seat will now be available on Air Canada flights
- Family sharing will allow you and your family to pool points for free
- Points will expire after 18 months instead of 12 months (and there’s a new mechanism to get expired points reinstated)
On the downside (of course there’s a downside), the introduction of dynamic pricing means that it will cost more points to fly on popular routes and during high season. Conversely, fewer points will be required for less popular routes and for flights during low season.
All three credit card partners (Amex, TD, and CIBC) revamped their Aeroplan co-branded cards and will all offer similar benefits and earn rates when the new program goes live on November 8.
I’m anticipating some strong welcome bonus offers to coincide with the Aeroplan relaunch. If you’re looking to top-up your Aeroplan miles before then, Credit Card Genius has the latest Aeroplan bonuses and offers to tide you over.
Other expert travel bloggers weigh-in on the new Aeroplan changes:
- Barry Choi calls it a huge win for travellers
- The Prince of Travel looks at the winners and losers resulting from the new changes
- Credit Card Genius looks at the good and the bad of the new program
- Patrick Sojka breaks down the new travel zones
Let me know what you think of the new Aeroplan changes.
This Week’s Recap:
On Thursday I wrote about boosting retirement savings in your final working years.
Over on Greedy Rates I wrote about investing in gold (a popular topic these days!).
I also listed my picks for the top 10 ETFs in Canada.
Watch for a post next week on how to give financial advice to your Millennial and GenZ children.
Promo of the Week:
It was sad to see EQ Bank drop its interest rate from 2% to 1.7% but when you look at the high interest savings account landscape you’ll find 1.7% still represents the high end of the market. Couple that with EQ’s hybrid chequing / savings account functionality, the ability to pay bills and send e-Transfers for free, and seamless linking with your preferred bank, and you still have a pretty compelling case to stash your cash with EQ Bank.
Open an account here and fund it with $100 within 30 days and you’ll get a $20 cash bonus for free.
Weekend Reading:
Misleading headline alert – Canada Pension Plan posted a 5.6% return for the second quarter, a result which reporter David Milstead said, “trails rocketing stock markets.” In fact, only about 30% of the CPP’s investments are held in equities while the rest is made up of bonds, private equity, real estate, and infrastructure.
Rob Carrick looks at TFSAs, RRSPs, and the tax hikes to come.
Someone who would argue tax hikes aren’t necessary – Stephanie Kelton explains why the national debt is not an obstacle to progress and why the government can afford to fund its priorities. I recently finished Ms. Kelton’s incredibly well-timed book, The Deficit Myth, which explores the concept of Modern Monetary Theory in more detail.
Jason Heath answers a reader question for MoneySense: Should you apply for a pension if you get laid off?
Insolvency expert Scott Terrio takes a deep dive into common barriers to solving debt problems. Great read!
My Own Advisor Mark Seed looks at what a post-pandemic future might look like.
Kyle Prevost explains his Canadian expat taxes, budget, and savings rate in Qatar.
The Prince of Travel walks us through everything we need to know about the new Aeroplan program from Air Canada:
The author behind the Freedom Thirty Five blog has achieved financial freedom a few years early – congrats!
Of Dollars and Data blogger Nick Maggiulli offers the definitive guide to Ray Dalio’s All-Weather Portfolio:
“Since February 2006, the All Weather Portfolio has compounded at a rate of 8% a year, which is higher than the S&P 500 but less than a traditional 60/40 (U.S. Stock/Bond) portfolio.”
Gen Y Money explains how to claim business use of home expenses in Canada.
Finally, here’s a terrific story from Millionaire Teacher Andrew Hallam about people trapped far from home by Covid-19.
Have a great weekend, everyone!
Whether you’re a late starter or seasoned saver, the five years or so leading up to retirement might be the most crucial time to get your finances in order. Here’s how to take advantage of your final working years.
Most retirement readiness checklists suggest your final working years is a time to double-down on retirement savings. The idea being that major financial burdens, such as paying down the mortgage and raising children, should be behind you and those savings can be parlayed into big contributions to your retirement nest egg.
High-income earners should look to their unused RRSP contribution room and contribute as much as possible in their final working years. This has the added benefit of generating big tax returns, which can be reinvested into your RRSP or used to pay down any outstanding debts.
Procrastinators have a final chance to break any bad spending habits and set their finances straight. The first step is to draw up a financial plan. Make it a top priority to pay down any remaining debt and get spending under control. You should then have a rough idea when debt-freedom is in sight and from there decide how long to continue working to meet your retirement savings goals.
Retirement income target
The often-used retirement income target is 70% of your final pay, meaning if you earned a $100,000 salary in your final working years then you should aim for a retirement income goal of $70,000 per year. But a more realistic retirement income target may be closer to 50%.
Regardless, you’ll need to find YOUR retirement number and determine whether you can reach your income goals through some combination of workplace pension, personal savings (RRSP, TFSA, non-registered investments), CPP, OAS, and/or GIS.
Piecing that puzzle together takes a lot of planning (and still plenty of guess work). No wonder choosing a retirement date can seem like such a daunting challenge!
Taking advantage of your final working years
According to a Tangerine survey, one-quarter of Canadians nearing retirement age don’t understand how their personal finances will work in retirement. I think that number may be understated.
With that worrying statistic in mind, here’s a retirement planning checklist for your final working years:
1. Determine where you stand – Take stock of your current financial situation by listing your assets and liabilities and analyzing your current income and expenses. Identify any opportunities to save more.
2. Define future needs – How will your expenses vary in retirement? Remember, you’ll no longer be paying into programs like CPP and EI, but your retirement bucket list might need to include money for travel and new hobbies. Add up your expected CPP payments and OAS benefits, plus any workplace pension plans, and determine the gap between your income and expenses. That gap will need to be filled from your personal savings.
3. Ramp up savings – Take advantage of unused RRSP or TFSA contribution room and boost your retirement savings into overdrive. Your final working years are a chance to make up for lost time; make sure to maximize your full employment income to have the most impact on your retirement savings.
4. Adjust course as necessary – Your final working years will give you a good idea whether or not you’re financial prepared for retirement. But even if you find your savings lacking, or you’re worried that you’ll outlive your savings, you still have options:
- Reduce your lifestyle – Maybe you were planning on a luxury retirement, but reality sets-in and you have to settle for something less. Decreasing your annual retirement income goal is one way to preserve your nest egg.
- Retire later – Many people dream of leaving the rat race early but the fact is that working longer not only gives you more time to save, but also fewer years of drawing down your portfolio. Those with pension plans, in particular, would benefit greatly from additional years of service in the plan.
- Take more risk – Financial planners use assumptions on your investment rate of return to project the value of your portfolio. As employees get closer to retirement, conventional wisdom has their portfolios shifting to less risky assets. But retirees are becoming more comfortable holding a higher percentage of equities in their portfolio. Given that retirement can often be 30+ years long, it can make sense to maintain a decent allocation of stocks well into retirement. Even a 1% increase in your annual investment returns can have a big impact on the life of your portfolio.
Final thoughts
Despite years of planning and saving, the transition to retirement can be financially challenging for many of us. Our final working years can give a major boost in preparing for retirement, whether through increased savings, aggressive debt pay down, or simply a conscientious effort to get our finances in order before reaching this milestone.