Ashleay: Welcome to iA Financial Group’s “In Your Interest!” podcast. My name is Ashley and today I’m joined, as u ual, by my colleague, Chief Strategist Sébastien Mc Mahon. Today we’re going to talk about the importance of discussing finances with your family; how you should approach this topic (which is sometimes taboo) with your spouse and children. Our guest today is our colleague Paul Santos, a financial planner in the Group Savings and Retirement sector. Hi Paul, thank you for joining us.
Paul Santos: Hello and thank you for having me.
Sébastien: Hi, Paul. It’s great to have you here.
Paul Santos: Thank you.
Ashleay: So, Paul, why do you think discussing money, even with your spouse, is sometimes taboo or can create some discomfort?
There can be a number of reasons. For example, there may be discrepancies in habits or opinions regarding financial management. One person could be, to use the common phrase, the primary bread winner. They might thus believe that they need to discuss overall finances with their partner. This opinion or discomfort could be even learned from when they were growing up. So, for example, if one parent made all the decisions and that talking about finances is not something you did with your spouse or, you know, other people, right? Another reason would be, for example, that one person tends to be thriftier while the other may be a bigger spender. That thrifty person may feel that the financial management as a couple is jeopardizing his or her financial security and future. On the other hand, the one who spends more may feel that his or her freedom and pleasure are being curtailed by not being able to spend as much as before.
Sébastien: Yeah, I can clearly relate with the thriftier person in your example. I think that describes my role within the household. But, as you said, it’s all about communication. Everything you mentioned are justifiable reasons, but it’s very important to get over the taboo, over the fear of maybe hurting the other person’s feelings and instead to have open and transparent discussions about finances. In my experience, I find that breaking the ice is the hardest part. But you know, once it’s done, the goal here is always to meet in the middle and make sure that everyone in the couple is comfortable with the future that they’re building together.
Ashleay: Absolutely. And I’m the spender in the couple! Paul, what do you think is essential to discuss with your life partner?
Paul Santos: First and foremost a frank discussion about where the couple or family stands financially. You know, what is the current financial situation? Are expenses consistent with income? Also, it’s important to establish a family budget, keeping it up to date and sticking to it as much as possible. I find that this is a hard task for most families and that it’s easier said than done. When asking couples and families to prepare a family budget, I generally like to point out to them that this exercise is not about reducing your spending, it’s more about understanding your current situation and finding opportunities.
Paul Santos: Another essential topic to discuss with your life partner is dealing with the unexpected and being well prepared for any eventuality. For example, does the family have an emergency fund? And how much do you need for an emergency fund? The current guideline is to have enough funds to be covered for between three and six months’ worth of expenses.
Along the same lines of dealing with the unexpected, having the proper insurance is also important. For example, it might be health insurance, you know, in case you need income replacement due to illness. Or it might be car and home insurance in case of an accident.
Sébastien: Yeah. And you know, speaking of emergency funds, we’ve discussed that in the past. If you’re listening to this podcast and are thinking, “Oh my God, I don’t have three to six months of expenses saved in an account,” well, you’re in the majority here, not the minority. And it’s one of the things that we know, which is why we like to repeat it here: we always recommend that you work with financial advisors. Because we know these things, everyone knows that they should have an emergency fund, but it can be hard to build, especially at every stage of your life. Maybe it becomes easier as you get older, since you may have a higher income and may be able to afford it a little bit more. But when you’re building a family, having kids, buying a first home, it’s hard to have an emergency fund. Nevertheless, having the right habits makes a lot of sense.
One thing that I’d add to what you said—all of which I completely agree with—is that you should make sure you always have access to your partner’s bank accounts in case they’re not able to do it on their own. Not to have control, it’s just if there is an accident, if someone gets sick or whatever happens, then the last thing you want to do is to have to scramble left and right to make sure that you understand exactly how the bills are paid, where the insurance policies are kept, etc. Maybe have the conversation about having personal accounts versus joint accounts. Also, in terms of planning for the future, discussing how expenses should be divided. All of these conversations are not fun to have, but, again, this is kind of the bedrock of a successful couple.
Ashleay: Absolutely. You also hear that it’s beneficial to talk about money with children. Do you agree with that, Paul?
Paul Santos: I completely agree with that. It’s a tough concept to understand when children are young, but you know, it is possible to introduce them to the concept of finances at a very early age. For example, allowance and pocket money. It’s important to let children make decisions about their money. But as parents, we need to help them understand and explain the benefits and consequences of different ways of using and managing their money.
Paul Santos: Speaking from personal experience, I have three kids and what we did in our family was we used different jars to distribute our children’s pocket money. One for spending money, which we called “fun money”; one for large item purchases that our child wanted to buy, which we called “goal money”; and then one for long-term future savings. So when our children wanted to buy something, they had to take the money from the appropriate jar. And of course, there had to be enough money available in that jar. And so they quickly learned the value of money. This approach worked really well for us. And of course, you know, each family can adjust to their own situation.
Sébastien: That’s a great system. The kids can actually see all of the jars before them and they see how much they can afford. So I think that’s a great idea. On my end, we give the kids an allowance based on a few chores, of course, in the house, so that they understand that money comes with work or at least contribution to the household.
Being an economist, I always like to think in terms of opportunity cost, so the conversation is always about whether you have enough money to buy this, but what else could you buy with the same amount? That way they understand that if you choose package A, then you’re renouncing package B, you cannot have both. So just having opportunities to help the kids understand the kinds of choices that they will have to make throughout their life, about making the most out of the resources that they have. So, the younger the better.
Ashleay: Yeah. Personally, I think it’s also important to discuss credit cards a bit more with our children. For example, my daughter is 11, so she’s starting to understand this concept. She can see me go out and buy, let’s say, a $1,000 item. And it looks so easy, right? But I always have to remind her that you have to pay that back, and if we don’t pay it back, it’s going to cost more: instead of $1,000, it’s going to be $1,200 or something. Then, it’s always very important to also explain how repayment works, how it’s preferable to pay off the entire amount rather than making the minimum payment.
Sébastien: Right. You can’t tell your kids that credit cards are evil, because credit cards are often very useful tools to make purchases. You can earn points that you can use for something else, there are cash back measures, or you can even get insurance on some of the products that you buy, which you don’t get when you pay cash. So credit cards should be part of the equation. It’s part of financial literacy to at least make sure they understand exactly how this works.
Ashleay: Absolutely. And even building a credit score, I mean, it’s important. If you don’t have any kind of credit, it won’t be good for you later on. Paul, I think you also an idea about helping them with their taxes?
Paul Santos: So, again, this is along the lines of financial literacy, right? This, however, is more geared towards an older child, maybe 15 to 17 years old. But if you think about it, they have their first job, they’re starting to make an income. Come tax time, chances are you as the parent and adult will do the taxes for your child. But before you actually submit it to the CRA, you may want to just kind of review it with them, you know: “Here’s how much you made last year; here’s how much you paid in taxes; here’s what’s going on.” That way, you’re slowly starting to introduce them to all these tax concepts. And as they get older, you can start helping them do their taxes. By the time your child turns 20, 21 years old, you’re going to have a confident young adult who is not going to be scared of tax time and who hopefully does not experience the whole scenario of that 10% penalty if you are late on your taxes and so forth. There are lots of things we can do that are simple and easy for a child—a young child all the way up to an older child—to help them become more financially literate.
Sébastien: Yeah. And when you have teenagers and they’re working—and they’re kind of all working now, you know, in 2024—so when they have an income, if they have unused space in their RESP, you can always encourage them to invest there. They can take advantage of a subsidy, which can be 20-30% depending on the province you live in. And also, you know, the money is in an RESP, you can’t just take it back next week to buy the latest fad. The money is there, you build discipline and you get the subsidies. So that’s a possibility for them.
Also, we’re talking about the immediate use of money here. But you know, you can always bring that into a cycle of life kind of conversation: how you use your time as a teenager and as a young adult will have an impact on your human capital that can also have an impact on your future stream of income. So, it’s not just about money out of pocket, it’s also about having a lifetime conversation. Preparing your teenagers, your young adults to be the best versions of the adults they will be down the road can also be tied into this conversation.
Ashleay: Absolutely. And, Paul, if we were to summarize what was said today, what would be the five things to remember?
Paul Santos: Sure. So first, as a couple, it’s essential to have an open and transparent discussion about finances, to establish a clear picture of your current financial situation. Second, the importance of drawing up a family budget is to be aware of our income and expenses. Remember, having a budget allows us to understand our current situation and possibly find some opportunities. Number three: be prepared for the unexpected. You need to have a plan in case the unexpected happens. You need to be well insured in case something happens health-wise or, you know, if you experience an accident of some sort. Number four: it’s a good idea to talk to your children about money. At first, we simply want them to understand the concept and value of money. Then, as the child grows, we can introduce more advanced concepts. And the last one, number five, it’s important to let children make their own decisions about their money. They will learn the most by making mistakes, right? I mean, I did, you know, growing up, making mistakes—but we all did. And their learning will be enhanced by having us as parents to help and guide them.
Ashleay: Well, thank you so much, Paul. And thank you, Sébastien, for this very relevant and important content. It really makes you think! We’ll meet up next podcast to continue our discussion on the importance of talking about finances. But this time we’ll focus on the importance of discussing money with seniors. It’s sure to be very interesting, so be sure to join us.
Loved this podcast? Want to know more about economic news? Follow our “In Your Interests!” podcast, available on all platforms. Visit the economic news page on ia.ca or follow us on social media.