Why earlier is always better when discussing money with your children
Kristin was the only child of parents John and Jane, successful healthcare professionals who were both the youngest of several siblings. Money never seemed to be an issue in the family, and Kristen remembers receiving one treat or another almost every time they went out. Her parents never discussed money around her and she never received an allowance; if she ever wanted to buy something, all she had to do was ask.
It wasn’t until high school that Kristen started to notice the stark differences between her experiences and those of her peers. Many of her friends were encouraged to find part-time jobs, budget for their discretionary spending, and save for post secondary goals. She always felt fortunate that her parents didn’t overwhelm her with the same kinds of pressures — and she pitied her friends for having to spend their weekends at work or doing chores instead of hanging out at the mall or having fun.
Kristen always vowed that she would provide her children the exact same life her parents had given her.
Early experiences shape attitudes about moneyWe may not always agree with our parents, but we are undoubtedly influenced by their habits, attitudes, and points of view. The norms and traditions of our upbringing can have lasting impacts on everything from the kind of laundry detergent we prefer to our conscious and unconscious relationship with money.
Protecting the innocence of childhood Many parents avoid discussing finances with or around their children. They may have been raised to believe discussing money is impolite or distasteful or worry about inadvertently offloading their financial stresses onto an impressionable young mind. Unfortunately, the best intentions often result in people growing up without learning the value of a dollar, the value of their time, or invaluable skills to build and preserve wealth over their lifetime.
The cycle repeats When children become eventually become parents, their first instinct is to either preserve many of the privileges they once enjoyed — or give their children a better childhood than they had. Moms and dads pride themselves on keeping their children happy, making sure they want for nothing, eliminating any undue stresses and worries and protecting their innocence for as long as possible. Whether money was a problem or not at all, this innate drive often materializes in the money conversation skipping yet another generation.
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Failure to launch
Kristen opened her first bank account during her last year of university. She was overjoyed when her financial services advisor mentioned a credit card for new graduates — and even more excited when her parents encouraged her to apply and offered to co-sign for whatever credit she thought she needed. A degree imminent and $10,000 in credit; she’d never felt so mature.
Unfortunately, Kristen quickly learned that finding that all important first job after graduation wasn’t going to be as easy as she thought. But her parents reassured her, they would gladly pay her credit card bill until she found her footing.
Bridging the generational divideThere’s no doubting the normalization of consumerism and credit over the past 70 years. Since the end of WWII, we’ve seen the introduction of credit cards and rise of mass television advertising, which eventually gave way to social media and so-called influencer culture. Where baby boomers once worried about keeping up with the Joneses, many of today’s youth and young adults are trying to keep up with the Kardashians and other highly curated and completely unsustainable lifestyles.
Debt has become deeply ingrained in nearly every aspect of people’s lives today. It’s now possible to finance everything from the old standards of a house, car, or education — to sofas, power tools, and smartphones. And that’s not to mention the endless debt currently on offer by the big banks and credit card providers.
Much of today’s astronomical record debt (which has become completely normalized for millennials and the coming of age generation z cohort) is the result of more than a decade of record low interest rates and easy borrowing. Consumer behaviours are, in large part, at the whim of central bankers who are more concerned about stimulating the economy than encouraging saving and prudent spending.
Everyone may be responsible for how they manage their finances, but like our parents it’s hard to discount the influence of our everyday reality.
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Until this point, Kristen never had cause to budget or seriously consider her financial goals. She’d always assumed she’d graduate, find a job in her chosen field, buy a house and start a family. The finer details always seemed to fall into place for her parents, so she assumed the same would be true for her.
She also never had to consider the difference between wants and needs. Satisfying her desire for the latest fashions had always seemed as self evident as sating her hunger or finding a place to live.
Time to take responsibility
When Kristen eventually did find a job, the weight of her situation quickly hit home. Her entry level salary was hardly enough to pay for groceries, and a small studio apartment — much less all the luxuries and lifestyle habits she’d become accustomed to. Rather than confront the situation head on, she tried to keep up appearances by continuing to rely heavily on her credit card, and eventually taking on two additional credit cards her parents knew nothing about.
Then came the conversation she’d been dreading: John and Jane suggested that with Kristen now living on her own and keeping up a full-time job, maybe it would be a good time to step back and let her take on some more responsibility. Little did they know that between the credit card balance they wanted her to pay and the two they knew nothing about, their daughter was now $32,000 in debt. To make matters worse, she’d already been falling behind on her payments and her creditors were preparing legal action against her.
In retrospect, Kristen acknowledged tensions between she and her parents had been coming to a head for years. There were subtle hints that they wanted her to cut back on her spending, or at the very least offer to help pay for some of her more outrageous purchases; but she’d failed to see them and there was no way she could possibly ask them for help now. They were empty nesters with big retirement goals. Asking them for any more money — much less almost a year’s worth of Kristen’s salary — could set them back even more years than she already had.
It’s never too late to learn
Kristen’s initial consultation with MNP began like many do. She was extremely critical of her past decisions and spent several minutes beating herself up for not seeing the financial crisis worsening all around her. She blamed herself for being overly dependent on her parents — and she blamed her parents for not giving her the tools she needed to succeed in the real world.
I reminded Kristen that children don’t come with user manuals — and it’s a massive challenge for parents to know when and how to start teaching their kids about financial literacy. And she admitted her current situation undoubtedly changed how she planned to shape her own children’s relationship with money one day.
We eventually agreed that there was absolutely nothing she could do about the past, and that John and Jane were simply doing what they thought was best for her at the time. The important thing is what we could do about her situation right now.
Kristen and I put a plan in place to eliminate her debt and worked over the months ahead on building some fundamental financial skills. She’s now a committed budgeter, has a wide range of short- and long-term financial goals, and is well on her way to overcoming her debt.
She’s had to sacrifice a lot in terms of material possessions and life experiences, but the last time we talked Kristen told me she’s happier than she’s ever been.
“My relationship with my parents has completely changed since I’m not so dependent on them anymore. And I cherish everything I do have that much more, because I know how hard I had to work to get them,” she said. “Some of my friends may have learned these lessons earlier, but I doubt they ever appreciated them as much as I do now.”
Randy Kobbert
Senior Vice-President
CIRP, LIT, CPA, CA
