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Parentís No. 1 New Years resolution: talk retirement planning to your kids

by Wayne Cheveldayoff, 2003-12-21

Itís time we introduced retirement planning into our childrenís education.

The schools arenít doing it, so parents must if they want their children to be financially adept.

Here is an example that parents can use to introduce the subject. If you challenge your kids to come up with the right answer, they may even have some fun and remember it.

Who will have more money at age 65?

Investor A invests $12,000 per year in an RRSP for 10 years starting at age 35, then doesnít add any more. Total contributions are $120,000.

Investor B waits until age 45 and then invests $12,000 per year for the next 20 years. Total contributions are $240,000.

Both earn 7 per cent a year on their investments.

The answer: Investor A will have $1,224,876, while Investor B, who contributed double the amount but at an older age, will have $526,382.

What this example illustrates is the power of compounding. It has a central role in retirement planning but youíll probably find that your children havenít heard about it before.

The schools arenít doing a good job of counseling kids on how to handle money and make it grow.

Children aged 12-19 are perfectly capable of understanding the concepts and the math involved. In fact, many children are taught in class how to calculate the yield on a bond and they generally have no trouble with that.

But thatís as far as it goes in the school system. Nobody is putting it all together to show kids what can happen over a lifetime if we save and invest on a regular basis and if we donít.

The teachers themselves may not know much about retirement planning. They have little incentive to learn. Teachers are provided with a good pension plan that has guaranteed pension benefits, usually available before age 65 and linked to inflation. Few of our children will be lucky enough to have this.

So, it is up to the parents to educate their children in how to provide for their retirement.

Make it a New Years resolution to get your children involved in your own retirement planning. Whether itís on track or a mess, it will be a real eye-opener for them. Talk to them about the mistakes youíve made and show them what you should have done differently.

Introduce them to a retirement savings calculator at a financial website so they can do some what-if calculations.. Most mutual fund companies and banks offer the free use of these. The Investor Education Fundís website at, also has excellent personal finance information for beginners.

Most parents have learned to talk to their kids about sex, drugs and rock Ďn roll but still donít talk to them about money. Itís time to start.

Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. He can be contacted at

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©2003 Wayne Cheveldayoff