Tax Matters

Jamie Golombek

As managing director of tax and estate planning with Canadian Imperial Bank of Commerce's wealth advisory services division in Toronto, Jamie Golombek is quoted frequently in the national media as an expert on taxation.

Advisors should help clients discuss the importance of money management with their children

By Jamie Golombek |

Finances are a big concern for post-secondary students in Canada as a recent poll from Canadian Imperial Bank of Commerce (CIBC) found that almost half worry they won't be able to cover the upcoming school year's tuition and living expenses, or pay back their student debt once they graduate. In addition, more than one-third of Canadian post-secondary students expect to graduate with more than $25,000 in debt. Clearly, there is a link between managing everyday expenses well during the school years and being in a good financial position upon graduation.

Thus, financial advisors are in a unique position to help parents both save for their children's post-secondary education, through such vehicles as RESPs or family trusts, but perhaps more importantly, encouraging parents to discuss the importance of establishing a realistic budget that factors in both the students' current needs while in school as well as for life after graduation.

To begin, I would encourage students to write down all sources of income, such as money from loans, scholarships or part-time jobs. Then, I would have students list their expenses, from tuition and textbooks, to room and board if living away from home, to discretionary expenses, such as beer and entertainment. Having a discussion with students about the importance of distinguishing between needs and wants will go a long way to ensure they have enough funds to cover the necessities of school before spending excess funds on discretionary expenses.

The other important discussion to have with your clients is how much financial support they can afford to give their kids, should they "run out of money." In fact, another recent CIBC poll showed that more than half of post-secondary students tapped their parents for additional financial support while at school last year because they ran out of money. This is despite the fact that 86% of parents believe they are good role models when it comes to financial planning.

Clearly, we are not having the right discussions with our kids early enough about the importance of budgeting and responsible spending. As soon as children are old enough to learn about money, perhaps when they first start to get an allowance, parents should begin to educate their kids about setting goals and not spending all of their newfound cash immediately. For young kids, that may mean not going to the corner store after school to save up for that new hockey stick. For teens, it could mean skipping the Starbucks treat in order to afford those hot concert tickets.

If we don't encourage our clients to have these discussions with their children at an early age, those kids may actually end up relying financially on their parents once they graduate and could end up putting a drain on their nest eggs. Case in point: a third recent CIBC poll found that about one in four parents who support their adult, non-student children spend more than $500 a month to help cover expenses such as rent, groceries and cellphone bills. As a result, some parents say paying these bills for their adult children is cutting into their personal savings and causing them to delay retirement as well as their ability to travel and spend money on themselves.

So, why not kick off the school year with an open and frank discussion with your clients about the importance of having a smart-money chat with their children so that this doesn't become a problem down the road.

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