This article was originally published in the Financial Post.
We all want our daughters to grow up to be strong and independent, but children often model the behaviour of their parents.
“The results of the triennial worldwide survey of 15-year-old students found that teens who talked about finances with their parents, even just once a week, scored 33 points higher in financial literacy than those who did not,” according to the Financial Consumer Agency of Canada.
“Higher levels of financial literacy in students are associated with confidence in keeping track of their account balance and planning their spending with consideration of their current financial situation,” notes the agency.1 “Both are key factors in building a financially secure future.”
Do you remember watching your mom balance her chequebook? I do. The advantage of technology is that we now have access to great apps and data, but the downside of our tap culture is that it’s so easy to tap away without paying real attention to our purchases.
The next time you find yourself with your daughter safely tucked into the seat beside you in the car (aka: trapped with nowhere to go), here are six topics you may want to discuss:
1. Set up two accounts to make budget management easier
Once you’ve established your monthly budget, transfer the monthly total to the “spending” account (likely a traditional chequing account), keeping any excess in the second (likely a savings account). This helps make a decision to review your monthly budget a more mindful one, and, in the process, helps establish better spending habits and ideally to live within your budget.
2. Don’t ignore the power of compounding
We’ve all heard the advice to “pay yourself first.” There’s future financial wellness in that statement. If at age 20 your daughter started saving and investing $361.04 per month, or roughly $12 per day, based on a five percent rate of return, she could be a millionaire by 65.
If she balks at that amount, I’m not going to be patronizing and ask her to forgo her latte ,but I’m going to suggest that investing in herself and her future is absolutely worth it and the earlier she starts, the better. That monthly amount increases to $698.41 if she waits until she is 30.
3. Encourage your daughter to maintain some financial independence
It’s nice to see our daughters in a loving relationship, but maintaining some financial independence has its merits.
Establishing and maintaining a healthy credit rating could become very important if she finds herself on her own in the future. Trying to borrow money at 50, post-divorce without a credit rating could create unnecessary challenges during a difficult time. If you are fortunate to help your daughter purchase her home, you might suggest she consults with a lawyer to understand the impact if she chooses to live there with her partner.
Our social media feeds bombard us with YOLO (you only live once). I find this is especially the case in our 20s. And while there is some truth in it, we can use it as a justification to make some pretty bad financial decisions. I have a handbag in my closet as a constant reminder of one of my YOLO decisions.
4. Talk to your daughter about your YOLOs and why you wished you had invested that money
I don’t want to think what the Apple Inc. stock would be worth if I bought it instead of that darn handbag.
I’ve often heard women described as being risk averse. I prefer to think that we’re “risk informed,” but to become that you have to educate yourself. I remain baffled that money management is not considered a core part of the school curriculum, but there are many online tools and books to fill the gap.
As a mother, I realize you can fill a child’s room with books, but can’t force them to read. We’re each motivated differently and there are some good options out there to develop your financial literacy skills.
5. Lifelong learning in financial literacy
Try some digestible books (The Wealthy Barber: The Common Sense Guide to Successful Financial Planning by David Chilton; Prince Charming Isn’t Coming: How Women Get Smart About Money by Barbara Stanny), a podcast in the car — again, they’re trapped beside you with a seatbelt.
Or match your child’s contribution to an investment account (perhaps a tax-free savings account if they’re over 18) and use this as an opportunity to discuss their investment choices. This is the entry level course required in the investment industry and provides a good overview of everything from investment products, family law (what happens in a divorce) and estate law.
You seek the advice of a dentist when you have a toothache, and a doctor when there’s unexplained pain in your body. You may visit Dr. Google, but you’ll soon realize it’s almost impossible to develop an appropriate plan without a proper diagnosis.
There’s a lot of misinformation regarding investments. The true benefit comes from having a comprehensive financial plan with regular check-ins towards financial goals that help people make smarter financial decisions along the way.
6. Encourage her to develop a list of questions, and interview and seek the advice of an investment professional
Aside from the questions one would ask regarding educational credentials, experience and investment approach, research has shown that working with a good advisor can have a significant impact on future wealth.
I would encourage your daughter to pick an advisor with whom she feels comfortable asking questions and one who wants to partner with your daughter, thus instilling confidence to own and lead her own journey to wealth.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.