Canadian Personal Finance Blog

Archive for the ‘Education’ Category

Uncomfortable Subjects with Kids

Larry MacDonald asked me a few questions for an article he is working on, and it caused me to think a bit more about a subject that it is important as parents to talk to our kids about. This subject is taboo in most families and is certainly not a normal dinner table topic, and I must say that as a child growing up my parents never brought this subject up, and I must also admit that most of what I learned about it initially I learned “on the street”.

What is this taboo subject, that so few of us talk to our kids about (and heaven forbid ever want to educate them about)? No, not the one you were thinking (although my parents never talked about THAT either), but the subject of Debt. My parents did talk about Money, but mostly in platitudes about the importance of saving and knowing how much money you earn and working hard (the Anglo-Catholic work ethic).

The subject of DEBT was taboo, and I suspect it is in many houses, because parents feel squeemish talking to their kids about this important topic. Admitting to your kids that you carry debt seems almost to be like talking about whether you did drugs as a kid, or when you lost your virginity (nope haven’t talked about either subject with my kids either).

As a youngster the first time I heard about DEBT and borrowing was from a school chum, who said his Dad had got some money from HFC (Household Finance) and at the end of the month he had to pay back MORE money than what he had been loaned. This concept seemed completely foreign and weird to me, and I believe I may have brought the subject up with my parents, and they may have dismissed it with a, “Well, never deal with a company like that….”.

There was an opportunity to teach a young mind about debt, and borrowing, but an opportunity missed in this instance.

You don’t have to go into gross details about your debt to your kids, but explaining to them what debt you have, and better still WHY you have that debt may be an important lesson to teach your children.

An example would be explaining about your Mortgage and why you carry that debt. Kids think you own your house (I know I did) and I didn’t really figure out that my parents didn’t own the house until I was graduating high school and there was talk of Mortgage burning parties and such. Having kids understand what a mortgage is for (and maybe what it is NOT for as well), helps them understand what Debt is, and the more they understand Debt, the less likely they are to get themselves into a “Debt Jam”.

Too many kids I know have no idea what debt is, or worse, don’t seem to care how it can disrupt, strain or even destroy lives and relationships. If your kid grows up with the following cause and effect model:

I ask Mum and Dad for an Iphone -> They argue about it, say that it is too 
expensive -> I keep asking and finally they buy it for me -> They get mad
at me when I lose it or use it

what are these kids learning? Did you have to go into debt to buy this toy? Can you afford to pay for this toy? Does your kid value this toy? (I believe in this example the answers are: Nothing, Yes, No, and No).

Teach your kids about Debt (aka the 800 pound Rhinoceros in the room) and encourage them to learn about it themselves. Don’t let them learn about it on the streets!

I remember as a kid I loved to play games, especially with friends and family and I enjoyed hours of fun playing those games. Some of these games actually were useful in teaching me about Money and it’s use, not just about the joy of competition (and winning).

The money games I played when I was a kid were:

• Monopoly, which is an obviously good money game, in the sense that it teaches kids about ownership, money management and about some monetary concepts like Mortgages, Taxes and Going bankrupt (not too sure what Free Parking taught you, but you did learn that it was good to stay out of jail as well).
• Careers was another game that I enjoyed, because it taught you about working or at least introduced the concepts around building a career and what you might need to do to build that career.
• Life, was a great game for day to day family life teachings, where you simply lived a life and had to pay out a lot of money along the way and attempt to get rich by the end of it all (and stay out of the poor house).

The best money game when I was a kid was called Pay Day, which was actually quite simple, but very effective in teaching you about balancing budgets, paying bills and living within your means. When I started playing this game I had no idea what some of the concepts being taught were, but when I got older more and more of those concepts showed up in my day to day life and I am sure I said to my wife more than once, “This is just like playing Pay Day”.

Not sure what today’s kids do to learn about money, although I guess games like SIMS and such do have a monetary concept to them (as does Roller Coaster Tycoon, a game I enjoy playing still).

Did you have a favorite money game when you were a kid?

Given the numbers we looked at from Stats Canada yesterday you need to ask yourself, just how much is this all going to cost and how can I deal with this expense.

Let’s run down some of the expenses you are going to need to remember are part of the entire “going to University” equation:

• Cost of Tuition (which varies depending on the school gone to, and the faculty in that school as well).
• Service Fees, some of these you cannot hide from and you need to remember they are there.
• Books and Lab Fees, not expenses you can hide from (you can try to lower them by getting used books or buying them where they are cheaper).
• Living expenses (if the child lives away from home), which could be either a residence and food plan, room and board if they rent a room off campus, or Rent and living costs if they live in an apartment-like model.
• Moving costs, if they leave home (especially if they are going a LONG way away).
• Computing costs, if they don’t already have a computer
• Back to school supplies, paper, printers, etc., etc., etc.,
• Coming home money
• Everyday living money

First, you need to ask, “Am I going to pay this, or am I going to leave it up to my kids?”. In my discussions previously many of my readers have pointed out they didn’t have their education paid for, nor do they plan to pay for their kids’ education. This is an option for a lot of people (and the only option for some folks too). If you don’t plan on footing the bill, then I guess you don’t need to worry about this.

If you are planning on paying for this, how are you going to save? Will you use the RESP savings vehicle? Maybe use your TFSA for extra saving? Get your kid to get a job while at school to help out (so they appreciate the cost of their education)? Hope to win the lottery? Sell a kidney on e-bay? All interesting ways to save for the financial onslaught that University costs can be.

Are you going to have multiple kids at University at the same time? That makes saving doubly important (and you better put twice as much away, at least).

Co-op education for your kid? That way they earn their way through school and it is less of a burden on you?

Nobody moves out, the kids go to school locally and live at home. That saves a WHOLE LOT of money, but then again, you have another Adult in your house, which may cause other issues, but that can cut your University bill in half, if the kids live at your place (but then, how do you get them to move OUT once they have a degree?).

Planning for this orgy of spending can cause your hair to turn prematurely grey, however, it will help you out in the long run.

So Stats Canada came out last week with some very interesting numbers about the cost of University across Canada and the relative increase in costs. I find this interesting because as of this coming year I will have two kids in University and I am learning a lot about the “Ins and Outs” of University fees (which seem even more complicated than bank fees, if that is possible).

The main message from the article was that Tuition Fees are up 3.6% from 08/09 to 09/10 Academic year, which means their inflationary increase is almost as good as Foods meteoric price increases.

On average, undergraduate students in Ontario also paid the highest fees in Canada at $5,951. Students in Nova Scotia had the second-highest average tuition fees at $5,696.

I feel so honoured to be the most gouged in all of Canada, and I’d like to point out that is the Average, which means some schools are more than that (and different faculties in those schools are even higher).

Tuition Only

This is the other more important point in this study, is that Tuition is really only the tip of the iceberg when it comes to University costs, yet it is the only part of those costs that are tax deductible (living expenses are somewhat deductible, but only in the hands of the student).

Nationally, the additional compulsory fees increased 6.8% compared with last year. On average, Canadian undergraduate students paid $749 in additional compulsory fees in 2009/2010, up from $701 a year earlier.

How bad can the fees be you ask, let me run through the list of fees I paid for 4 months for my daughter at WLU (this is excluding Tuition):

• Administrative Council Fee $29.92
• Copyright Agreement Fee $1.70
• Comprehensive Student Fees $150
• Student Union Building Fee $26

Now I don’t mean to pick on my daughter’s Alma Mater however, these are only SOME of the fees I pay (along with a Bus pass fee and Insurance plans too). Hefty eh? Oh, did I mention she also pays $450 rent for a room and has to pay for her own groceries? Yes, this is not cheap, and it is not getting any cheaper either.

With a 4% increase a year on the horizon, think of this interesting statement, if you have a newborn by the time he or she wants to go to University, Tuition costs will have doubled if this trend continues, and my guess is they will have MORE than doubled by that time AND the fees being charged will increase as well (and book costs, let us not forget those too).

Tomorrow, more discussions of the costs of University.

For those of you who are unaware, Banks try to capitalize on attracting new (and young) customers on campus these days (most Universities have entire bank branches on campus).  They are quite aggresive in their marketing to these new potential clients, enticing them with iPods and other “perks” to open new accounts.

When I was at University the on campus bank knew that a great many of the students were in Co-op, and thus excellent new victims for their bank service fees. I opened a bank account on campus at first mostly for ease, since I lived on campus at the time, but then they started enticing me with new exciting services like:

• My first credit card, because now I actually made money (4 months at a time), and I could now start learning about the joys of CREDIT (and hopefully not pay my bills on time).
• RRSP loans, to move income around from year to year (if one year I worked for 8 months, I could normalize the income with the next year, by using this loan, for a small fee).
• ATM machine access and their fees (yes I am that old that this was a new service back then).

The CIBC branch at the University of Waterloo had a pretty sweet business running, and I am sure there are people who still bank with CIBC because they started at the U of W. I changed banks after I moved off campus and Canada Trust was actually a closer bank, but I kept my CIBC credit card for a long time.

Banks are always on the look out to get NEW clients that want to pay Bank Fees and put their savings in their banks for the bank to use as well.  When you send your child/student off to school keep this in mind and maybe talk to your kids about banking and the in’s and out’s of the “Banking Game”.