Balancing financial priorities as parents

When to spend on them and save for yourself.

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Remember the line in Spiderman where Aunt May says, “You do too much…you’re not Superman, you know?”

Some parents think they’re Superman. Determined to set their children off on the right foot, they commit buckets of money to helping them achieve their goals. From private schools to smartphones, laptop computers and post-secondary education, even home down payments and on-going financial support, parents will dig deep to buffer their young’uns. Hey, I’m all for meeting your responsibilities to your children. After all, they didn’t ask to be born (or so I’ve been told). But some parents take “helping the kids” a tad too far.

When it comes to using your financial resources smartly, one of the trickiest aspects to master is balancing priorities. You want to provide a great place for your family to live. You want to create opportunities for your kids to have mind-expanding experiences. You want to plan for the future.

Planning for the future includes saving for school, getting the mortgage paid off, having some money set aside for retirement.

But how will you decide how much goes where?

Lesson No. 1 has to be living within your means. If you’re taking on any debt at all, that’s got to be the first to go. And if that means no more piano lessons, so be it. Some things are a little important; some things are very important. Being consumer debt free falls into the latter category. And living within your means is the basis for all the rest.

When it comes to deciding whether to pay down the mortgage or set aside savings, the timeframe you’re looking at has the greatest impact. When you took on the mortgage, you chose an amortization of, let’s say, 25 years. As long as that amortization gets you to mortgage free before you retire, stick with the mortgage payments and build your savings for the future. Unless you plan to sell your home (and you don’t care all your assets are tied up in one investment), you have to build savings so you not only have a place to live, but money to eat.

If you’re starting in your 20s save 6% a year throughout your life and you should be fine. Starting in your 30s, you’ll have to go with the much-quoted 10%. In your 40s you’ll have to set aside 18%. Have a group retirement savings plan at work? That counts towards your savings. Have a plan at work you’re not using? Are ya nuts?

Now that you’re paying your rent or your mortgage and you’re setting aside money for your own future so you don’t have to be beholding to your children you can consider paying hockey fees, saving for their future school needs, picking up dinner on the fly as you rush from piano lessons to karate.

If you’ve got the resources to cover it all, go right ahead. You’ve taken care of the big details, so have the life you want. It’s your money to spend as you wish. If you don’t have the resources to have it all at once, you’re going to have to make some choices.

Saving for school is your best bet. The free money (the Canada Education Savings Grant) the government is willing to give you should be incentive enough. You put in $100 a month (you can actually put in up to $2,500 a year to get the max) and the government will give you the equivalent of $20 a month. Where else are you going to get a 20% return on your money? And that’s before you’ve invested it. For more on this, check out MoneySense’s updated RESP Calculator.

Then you’ll have to decide whether you’re going to pay for hockey and piano or soccer and summer camp. Yup, you’re going to have to choose.

While it’s great that you want to give kids everything you can, doing so at the cost of your own future is short-sighted and, well, dumb. Propping them up when they become young adults and refuse to live within their means is even dumber.

And yet so many parents do just that, supplementing their children’s incomes, paying their rent, letting them tap their accounts or their credit as they wish. Imagine letting your kid blow through thousands of dollars of your money because you feel sorry about their “hard life.” Hey, we all have had hard times; learning that we can live through them is an important lesson.

Each of us has to learn lesson No. 1: Live within our means. That includes Darling Daughter and Sonny Boy. If you keep sticking your hand in your wallet, draining your own resources to keep them afloat and you’ll both end up sunk.

Balancing priorities and deciding where to best use our financial resources is a very important step in managing our money, yet so few people stop to think about it. Instead we knee-jerk respond to each call on our wallets. Ultimately, our savings suffer as we seek to keep up with the demand.

Today, stop and think about how you’re using your money. Are you living within your means? Setting aside money for your future needs? Choosing what’s most important over what’s most recently demanded?

3 comments on “Balancing financial priorities as parents

  1. As a Chinese, I will for sure provide as much as possible to my children, especially in financial support. This society is never ever a fair society. My parents are unable to provide me too much financial support so I have to work on my own and it took me many more years to accomplish what many of my peers did long time ago (for example: home ownership). I would like my children not to replicate my road to a decent life. They deserve a good start, as long as I can help. Their future is my #1 priority and my own future, like retirement, is #2 or #3, depending on my parent health condition.

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  2. Its a very nice and informative blog, after the baby born most of the people think of the future of the baby. Most of the parents fulfill the requirement of the baby, they think for the batter education and how the children develop themselves for making a good carrier, for doing these type of things financial condition should be good. When the child grow up the expenses also rise so the financial condition also be parallel as per the growth.

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  3. As an addendum to your article, I’d like to see the flip story presented: Baby Boomer parents with the entitled attitude. My in-laws are a case in-point: they had loads of help from their parents (i.e. paid for their wedding, gave them land to build a house on), then also received four, yes four, inheritances. Did any of it come to their children? No. No help with school, no RESPs, nothing. Now, they are both retired, and have started deferring property taxes against the value of their home, as well as taking out a sizable HELOC so they can snowbird away to somewhere warm for 2 months out of every year (November and February are always a cruise/Hawaii/Florida/Mexico etc). Their stated plan is to spend it all, since you “can’t take it with you”, and when the time comes, they expect that we will take care of them! Or, that if they have to go into a care facility, their intent is to have no estate left because “the governement will just suck it up anyway but if we don’t have our own funds The System will still cover our care expenses”. So they intend to spend it all, and then leave themselves as a burden to us or society. This, in addition to sitting in their “valued” house, driving up prices and making it harder for us first-timers to purchase a home, yet when the time comes, there will likely be a market crash and the sale of their home won’t cover their debt, thus saddling us with it. A recent article in the news pointed out that 25% of seniors retire with debt that they never intend to pay off… leaving it to be borne by their children, or society… which still has an impact on their children. No one wants to focus on this maneouver being played by the retiring generation, and yet, the game is afoot- in the blogosphere chatter among my peers, we are not the only one with parents of this ilk. I challenge someone to be brave enough to write an article and publicly call out these entitled retirement folks, since it seems to be about 1 in 4. Perhaps a widespread news campaign against it can make some of them recognize the error in their ways with enough time to at least cover their own end of life expenses and leave us debt free, given that they’ve left us with no resources but higher house prices, higher medical premiums, a higher retirement age, and longer roads to the jobs to pay for those things.
    As for my parents, they were part of the 3/4 that have a “balanced” outlook: They stayed out of debt, set aside what they could into a small RESP for me and my siblngs, and while they have not helped us out financially in any other way, they have planned for their own financial independence through to their closing years. There won’t be any inheritance, but their won’t be any debt either, so on the whole, I am thankful for the small help they have given and the financial responsibility that they have brought to the table.

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