Every year moms are showered with flowers and appreciation for Mother’s Day, but there is one gift that moms can give their daughters: the gift of financial confidence. Kim Parlee speaks with Ingrid Macintosh, Head of TD’s Wealth for Women program and a mom herself, about five important financial lessons mothers can impart to their daughters this year.
- Absolutely, Kim. And I will start by saying that I have three sons and a daughter, so the lesson is for all. But we sure want to make sure that everyone is set up well. Build your net worth. I think that's language that we use in our industry. But what it really comes down to is teaching our children young to understand the impact of the financial decisions that they make, all those micro-decisions, whether it's spending on an extravagant item in the short run or running up debt or how they save their money. Understanding those tendencies and what they mean in the long run is critically important.
So if you're thinking about making an extravagant purchase, think about maybe what those dollars invested in the long run might look like. Similarly, if you're thinking of buying a car, well, a new car is going to depreciate 20% a year right out of the gate, whereas if you put some of that money away for the long term, you're going to be in much better shape for your future self. And as I always love to say, the two most important investing tools are absolutely free, and they are time and diversification.
- Number four is plan for emergencies, one that we all know really well this year.
- Oh, yeah. We never think something bad is going to happen, and we certainly learned the hard way this year that something really, really bad can happen. In fact, over a third of Canadians would say that even if their expenses went up by $100 in the next 30 days, they'd be in a tough spot. And we know almost half of Canadians were impacted in some way by the job losses related to the COVID-19 impact. That had nothing to do with your job performance or anything you thought was in your control. It truly was an emergency.
So putting away a little bit of your money and thinking about that emergency fund separate from those long-term savings for retirement-- it not only gives you the financial security, it also gives you that peace of mind that's going to help you sleep well at night knowing that you're prepared for the things that you don't expect.
- Number three-- credit cards and lines of credit are great, but do not abuse them.
- And it's like good fats and bad fats, right? So particularly if we're looking at lines of credit versus credit card debt, credit card debt is absolutely a bad fat. When we think about using credit cards, for sure, they provide us with liquidity and the ability to make purchases. And in some cases, they really give us terrific rewards points. But they also come with incredibly hefty charges.
In fact, the average credit card in Canada charges a whopping 20% for interest. So if you can imagine, you think you're getting a great deal on something, and you use your credit card to pay for it-- if it takes you five years to pay that credit card off, you've actually paid twice as much for the thing that you bought. And also, we know that women in particular-- 34% of women have more debt than they do savings. So really being mindful about how and where you use your credit cards and being sure that you're paying off those balances in full is incredibly important because, again, this not only impairs your financial health, I think it can really impair your mental health as well if you're carrying that burden of credit card debt.
- All right. Speaking of debt, number two-- you say to pay off that student loan.
- Again, it's another form of debt. And this is where I really think, no matter where you are in your financial journey, talking to an advisor to help you balance the tradeoffs between quickly paying off your debt or getting on your savings and investing journey is critically important. Tuitions are going up. The average tuition went up 3% this year. It's going to continue going higher. So that debt that we have or that burden of debt will continue to grow.
56% of graduates today are women. And we know that, again, we don't want them carrying this debt for a long time. And we talked a little bit about build for the future, and I think about the decisions my husband and I made when we were first married. We paid the mortgage, and we always put money into our RESP for our children down the road. So one of the gifts that we paid forward for our children was the gift of very limited university or tuition debt. But if you do have it, work with an advisor to figure out the right path to paying that down while also starting to build for your future, because you don't want the memories of university to really live with you for a long time.
- Not those kind of memories, anyway. Number one-- leave a legacy. And what does that actually mean in plain language?
- I think it means a lot of different things. I think everybody thinks that means, oh, leave a will and leave money behind. But I think a legacy is so much more. Let me start with that first piece, the will. More than half of Canadians don't have a will in place. And of those who do, only a third would say it's up to date. So truly, when you think about wills, that is really making sure that your house is in order financially, you've done the right planning to make sure that you're passing on a financial legacy.
But I like to think about things like how you conduct yourself every day, or potentially, giving the gift of financial literacy to your children is, in fact, setting up a legacy, because you're teaching them the skills they have today to build a stronger financial future and really setting them up for long-term success. So your legacy is about your financial journey, but it's also about how you'll be remembered and the mark you left on the world and those around you.
- Ingrid Macintosh, thanks very much, and happy Mother's Day.
- Thank you so much, Kim. Same to you. Take care.