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How to strategically cut the financial cord with adult children


Ida Khajadourian: Financial support should not come at the expense of a child’s path to financial independence

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By Ida Khajadourian

A staggering 91 per cent of Canadian respondents to an informal survey conducted in 2023 said they extended financial support to their adult children, covering expenses such as groceries, mortgage payments and rent amidst rising living costs.

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While parents can provide this type of support out of love for their children, it should not come at the expense of their child’s path to financial independence.

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Canada is undergoing the most substantial wealth transfer in history, underscoring the need to empower children and dependents to proactively manage their finances through education and careful planning. By evaluating financial beliefs, values and practices, families can actively promote financial autonomy in their children, guiding them towards their financial objectives.

Initiating early conversations

Parents are instrumental in shaping their children’s financial behaviours and attitudes. From a young age, children observe family members’ approaches to money, implicitly learning from their saving and spending behaviours, lifestyle choices and financial discussions. Although approaches to discussing money may vary across families, education about financial concepts is vital to preparing children for future financial success.

Parents who engage younger children in financial discussions often find them more eager and receptive to managing finances as adults. This can range from creating a budget for a significant purchase such as a new cellphone or developing a plan for investing their allowance or birthday money.

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Establishing sound financial habits

Developing sound financial habits early can equip young adults for success as they transition into adulthood. For example, parents should emphasize the importance of developing a good credit score and explain how responsible credit-card usage contributes to a healthy credit rating and greater financial freedom.

Teens and young adults should be educated on financial basics such as the power of compounding. Saving and investing early can lead to significant growth over time, with the potential for exponential increases in the value of investments.

For example, if someone consistently invested $400 every month beginning at age 25, they would have grown their portfolio to nearly $800,000 by the time they are 65 using a monthly compounded rate of return of six per cent. Starting 10 years later at age 35 would yield half that result, or $402,000, by age 65.

As such, it’s worth engaging children in these discussions early on, as the full potential of compounding earnings is only realized when one starts saving and investing early and maintains this discipline throughout life.

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Leveraging financial tools

There are more tools than ever to assist in managing personal finances at any age. While online tools are not a replacement for the value and guidance provided by wealth advisers, they may help young adults develop financial literacy and experience by equipping them with key concepts.

Robo-advisers, budget-tracking apps, financial podcasts and videos are just a few of these resources, though it is crucial to differentiate between credible and non-credible sources.

Families supporting their children financially may leverage investment vehicles such as registered education savings plans (RESPs), first home savings accounts (FHSAs) and tax-free savings accounts (TFSAs), ensuring the money is being invested and directed towards a specified target or goal. These vehicles allow parents or grandparents to contribute, making a longer-term and more meaningful impact.

Planning strategically

Considering long- and short-term objectives allows young adults to formulate plans and take the necessary steps towards achieving their goals.

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For many young adults, short-term goals may involve post-secondary education, starting a business, travelling, buying a home, marriage or just gaining control of their money. Regardless of what one’s plan looks like, identifying these goals and communicating them with family members can help ensure they have the necessary resources and support to achieve their objectives and stay on track.

In these discussions, wealth advisers play a pivotal role, guiding parents to facilitate effective and productive conversations with their children. They can offer agendas, resources and guided discussions, and act as trusted advisers to ensure effective communication and strategic planning based on a family’s unique financial circumstances and goals.

Recommended from Editorial

Open communication about finances may be uncomfortable for some, but it is crucial when it comes to financial planning. Topics such as prenuptial agreements, wills and estate planning may be challenging to discuss, but addressing these matters upfront can help avoid future problems or unpleasant surprises if things don’t go as planned.

Ida Khajadourian is a portfolio manager and investment adviser at Richardson Wealth. 

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