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Celebrating 20 years! – Part 2

There is a major lack of education about financial wellness.

Financial Wellness Education

Educational experts believe that our ideas about money are set by the time we are 7 years old.

Parents. Talk to your kids about money. Start today. At age 4 they do not need to know about your mortgage, RSP or car payments. You can talk to them about the choices you are making at the grocery store, shopping for sale prices for a toy they want or the cost & options for buying new shoes as their feet grow.

As they age, do talk about the mortgage, car leases, food costs, home repairs, your investments and insurance. They may not need to know specifics. I mean, no kid needs to know they get $1,000,000 if dad kicks off, but they do need to learn about how money works and how to prepare for adult type financial expenses.

Speak to your school principal about adding financial concepts to math class. Write to your minister and ask why kids are not being taught about budgets, investments, taxes, shopping and inflation.

Robert Kiosaki in Rich Dad Poor Dad said it very well; (paraphrased)

  • People of average means, if they have dinner together, talk about how their days went.
  • People with wealth, talk about money. Deals they made. Things they learned.

Money does not need to be explained in a manner that makes it the most important thing. It can be explained in terms of how it works. A great example can be illustrated using mortgage rates.

Most people think that if your mortgage rate increases from 2% to 3% your interest rate has only gone up by 1%. In fact it has gone up by 50%. In short, in this case, you will pay 50% more interest.

For example, look at the following mortgage calculations using a $100,000 mortgage with a 5 year contract.

Celebrating 20 years! - Part 2_8

This is for only a $100,000 loan. Your payment only increased by $50 / month. Affordable for most of us.
However, over 5 years you have spent 50% (not 1%) more, $4,692, on just your interest.

If you have a $400,000 mortgage, that difference is now $200 / month and $18,768 in interest. Now consider how many months you need to earn $18,768…after tax. In BC if you make $65,000, you pay about 18% (or $11,700) in income taxes. In pre-tax dollars, you need to make $22,986 to pay that $18,768. In terms of time, that equates to about 3.5 months. That is a good amount in savings, a nice trip with the family, or just more time for you.

Now consider that you knew this before speaking to your bank or mortgage broker. That little piece of knowledge is power. Imagine that if you could give your children lots of little pieces of knowledge like this.

Talk about:

  • The fees charged at your bank and if you actually need a brick & mortar bank
  • Fees charged by mutual fund companies. How can you find lower fees?
  • When shopping for food, do you shop for convenience or cost savings. This is a choice.

I can list suggestions for hours. The end game here is choice and outcome. When planning your budget, retirement, business, new home or car purchase, you can choose to work more hours or fewer hours for that thing. Sometimes the thing is totally justified. Sometimes it is optional. The big thing here is to give your family the ability to understand that fact and start to give them those skills at a young age.

When I provide an education session to my personal clients, I always advocate they talk about what they learned with their friends and family. These concepts should not be kept to yourselves. Make them part of your regular life. By doing so, you will help so many people. They are important.

 

PS.
Click here to read: Celebrating 20 Year! – part 1

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