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Sunday, July 31, 2016

Canada Child Benefit – Update

Posted by Tim Stobbs on July 25, 2016

As you may recall I have a long history of taking any government issued money for my kids and putting it into their RESP account.  Yet as we started to make more income over the years and the kids got older, we slowly got less money and I just decided to top up our monthly investments of $334 to their RESP account to make up the short fall.

Yet now the Federal government has revamped the old Child Tax Benefit and Universal Child Care Benefit into the Canada Child Benefit and everyone found out this week our new amounts and I have to admit I was a bit surprised to see our go up and be higher than I thought it would be.  We previously got just slightly over $200 per month combined on the old system and I had used the online calculator to estimate our new benefit to be only a bit higher at $220 per month.  Of course even if it had been slightly less we would be a bit better off since the new payment is now tax free.  Needless to say I was a bit shocked to see our official letter come in stating the new amount would be just over $350/month.

So what the heck went wrong?  So I went back to the online calculator and read the fine print at the bottom to notice it says “A different definition of income (adjusted family net income) is used to calculate actual entitlement, and would generally be lower than household income.”  So basically, everyone who previously used the calculator got a low ball estimate and got more than they were expecting.  Nice surprise.

This also means that I likely won’t have to put any money aside to top off my kids’ RESP account going forward as I previously thought I would have to do for the initial year after I left my job.  Instead the amount we get from the Canada Child Benefit should be enough to cover the entire $334 to their RESP account every month and even have some leftover to cover other kid related costs.

The side benefit of using tax free money to pay for the RESP contributions is they also get topped up by 30% (10% is from the Saskatchewan government and the other 20% is from the federal). So with very little money from us over the years my kids have over $60,000 put aside for their post secondary education already and we should easily be able to hit my $80,000 target in just a few years and then with investment returns exceed that amount.

Overall the new Canada Child Benefit was a nice surprise for us.  Did anyone else notice the same issue of under estimating how much they would get?

Educating Your Kids About Money

Posted by Tim Stobbs on July 15, 2016

Warning: This isn’t a post telling you how to raise your kids, the following is purely what we have chosen to do.

I expect that most people would assume that my personal finance obsession would lead me to have children who can write a financial plan before they finished Grade 2.  Alas, that isn’t the case, actually if anything I’m trying not to pass along my particular obsession.  Rather I believe in letting my kids find their own interests and support them in those.  If they want to learn about compounding interest I would be happy to help, but I don’t intend to force the issue.

Instead I took a different approach to teaching my kids about money: I gave them some.  Actually come to think about it I’m not sure if my youngest son even recalls a time where he wasn’t getting an allowance.  Yes, we started VERY early with giving them allowance (we can’t recall exactly, but we think ages 3 and 6).  At the time I wish I could say it was for noble reasons, but in fact it was done to solve a very specific problem.

You see every time we took our oldest boy to the store, he would ask to see the toys and often we agreed to have a look.  This lead to lots of “I want THAT!”  Or he would see a commercial for something and say “I want THAT!”  And frankly, I got tried of saying ‘No.’  So instead we gave him and his little brother an allowance and now the answer was “Do you have enough allowance for that?”  It just saved us a LOT of discussions about buying toys.

Therefore we then had questions about: how much does that cost?  How long do I have to save for that? And of course we helped them count out their money every week after they got paid.  So their education began on saving money.  Of course what was particularly interesting for me was watching them spend it as fast as they made it in the beginning.  The results was a large collection of Hot Wheels in the house for a while as they could typically afford about one a week.  Then one day I had a chat with both boys in the store regarding delayed gratification.

I said as my oldest boy picked up another car to buy “I thought you wanted that other toy.”

He replied, “Yes, but I don’t have enough money”

“Do you want the other toy more than the car in your hand?” I asked.

“Yes.” He nodded looking up at the other toy.

“Just so you know, that if you don’t buy the car and you save the money you can get the other toy faster.  For example, it would only take you two more weeks to save for it.  But if you keep buying cars each week it will take you like six weeks to save for the other toy.”

He paused looked at the car again and then turned around and put it back.  “Okay, Daddy, I’m going to save the money for what I really want.”

My poor personal finance geek heart nearly exploded in happiness at that moment.  At the age of six, my son had learned something most adults seem to have problems with: delaying gratification.  While that was the first time we continued to have similar conversations as they spent their money on different things and helping them understand the consequence of their choices.   They learned by trial and error about savings money versus impulse buying.

Also we did one other thing, I NEVER told them how to spend their money.  It was always their choice not matter how silly I thought it was. I would advise against things but remind them the choice was theirs.  So by themselves they learned that dollar store toys aren’t worth the money, how some things cost more at some locations (like pop in a vending machine) and what happens when you lose money (no one offers you a refund, because it was your fault).

During the entire allowance pratice we also introduced some other related money concepts.  Like we expect some work in exchange for the money we give them.  In the beginning it was easy stuff like cleaning up their toys in their rooms once a week and making their bed.  Then as we gave them annual raises and added more work for those raises.  Now they clean their rooms, feed the dog, dust their rooms, help clean their bathroom, set the table, clear their plates and other chores around the house.

This also let us teach them another important lesson one week when they asked if they had to do their chores after complaining about them again.  I replied, “You are free to not do your chores, but you won’t be paid if you don’t work.”  Thinking perhaps I wasn’t serious one week they decided they were not doing their chores.  So I cleaned the entire bathroom without them.  Then the next day they asked for their allowance.  I reminded them they didn’t do their chores so they didn’t get any allowance.  They then asked to do them now and I explained I already did it, so they just weren’t getting paid.  Next week, they did their chores and oddly enough they have never asked to not do them again.

So in sort my entire teaching kids about money philosophy is basically: give them money, let them screw up and have consequences for their decisions.  The by product of this is my kids have learned many useful lessons on tiny amounts of money that will serve them well as they get older and now they are rather good at saving money.  They have even learned about pooling their savings to buy bigger Lego sets that they can share and using Christmas gift cards to help support their own savings.

Okay, now your turn, how do you teach your kids about money?

What Do You Tell The Kids?

Posted by Tim Stobbs on July 12, 2016

Dee asked a few questions the other day with respect to kids and early retirement.

How old will your kids be when you retire? I remember my mom retired for my last year of high school and I had to get myself up and to school while she slept in. She did let me use her car to get there, though, so that part was nice. Do your kids anticipate any particular feelings about your retirement?

The first question is rather easy, so let’s address that first.  My oldest will be 13 at the time while my youngest will be almost 10.  So they won’t be really young, but that will be in that lovely stage just before teenagers.  So on the plus side they will be mature enough to explain the entire concept to them if I want, but I’m not sure I will.

I have to admit I’m a big concerned about my kids thinking we have lots of money.  We live a comfortable life right now, but we don’t act rich.  Yet I do worry about telling them straight out that their Mom and Dad have a million dollar net worth. I’ve seen odd things happen to kids who think their parents are rich.  Like for example: a lack of motivation, a sense of entitlement or just plain old arrogance regarding money that isn’t theirs.

While my wife and I haven’t firmly decided on what to tell them yet, I’m leaning towards the truth, but in a context that makes more sense for them.  I don’t have an exact speech in mind but it would likely be something like:

Hi guys, we need to talk.  Dad is leaving his current job on [insert date here].  But that’s okay, since we have got a lot of savings we don’t have to worry about paying for groceries .  Dad is going to change jobs to writing.  You remember his book downstairs, well I want to make more of those.  So my new job will be writing books.  I will work from home just like Mom does from now on, so I will be here when you leave and get home from school.  Any questions?

Of course I will play it by ear a bit.  It depends a bit on how much they already know.  It’s not like I actually hide my retirement plans or anything, but at the same time I don’t put it in their face.

Now some people may assume by telling them my job will be writing, that I’m lying to them.  I personally don’t see it that way, as writing will be my job.  I just don’t worry about making much money at that job and all my deadlines for work will be entirely self imposed (until I sell a book to a publisher and then I have to meet their deadlines).  I do love to write, so I will be doing that regardless of anyone paying me.  Like you know, right now, writing this post for you. ;)