Too many people consider money a taboo subject. The result is generation after generation at risk of repeating the same mistakes, or getting behind because they didn’t have the guidance to get ahead. Those who have conversations about money with their kids realize that talking about money and teaching them how to make sound financial decisions provides some of the most valuable life lessons. There is a golden opportunity when kids are in, or bound for, university or college to help them learn everything from living on a budget, to setting financial priorities and even projecting forward their financial position. Seizing this opportunity to impart financial knowledge will set kids up for financial success in the future.
Step 1: Take the Financial Inventory Help them understand what their savings are, what (if any) you may have saved in an RESP or other education savings vehicle for them (and what you are willing to allow it to be used for!). Also, include in the inventory any debt they may have accumulated to date.
Step 2: Set the Budget Assess the financial cost of what pursuing / finishing their education will be. Include not just tuition and books, but also things like the cost of rent, food, entertainment, transportation, and even factor in some emergency money (they better get used to it – life is full of surprises!). What can they expect to earn during their summers and during school if they have a job?
Step 3: Identify the Gap Is there a gap between their financial resources today, the income they expect to earn while in school and what the costs will be to complete their studies? If so, engage in a conversation about what some of the strategies may be for bridging the gap. Will they need to be prepared to take on (more) debt? Perhaps they will need to find a part time job while going to school, or find a better paying summer job. As parents, are you able and willing to assist with more expenses? If so, do you have any conditions for doing so?
And for those who really want their kids to be prepared for life after school,
Step 4: Project the Future Have your kids spend some time researching their career path. Their pursuit of post-secondary education is for gaining knowledge, skill, and life experience as they look become independent adults. It is also a financial investment. What sort of income can they expect in the career they are planning? The Hay’s Salary Guide is a great resource for researching incomes for a variety of fields. Don’t forget the eye opening experience of income tax! To translate that salary into after tax dollars, the E&Y Tax Calculator will very quickly show the after tax income in each province and territory for a given salary.
Growing up comes with a lot of responsibility. The more parents can do to foster and promote their children’s financial literacy, the greater the chance they will raise their kids to become financially independent adults. Definitely a gift worth giving.