My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, June 25, 2018

The Taboo of Asking for Money Within a Family – Part 2


Last week in part one of this two-part series, I suggested there are three reasons why people may ask their family for money. They are: need, seed and greed. Today I discuss these three reasons in greater detail.

Need - I Really do Need the Money


Some examples of need-based requests by a child are as follows:

a) They are in a bad and/or abusive marriage and need money to get out of the marriage.
b) They need money to help buy a home.
c) They lost their job

Parents may ask their children for money for the following reasons:

a) Medical issues
b) Elder abuse by another child or another individual
c) Poor retirement planning
d) Poor fiscal environment

One of the hardest decisions a parent will have to make is; the decision to gift or loan money to a child that is in true need of the money. These are factual requests in which the need for money can be substantiated. These requests leave no question that the money has a direct intended use and will not be used for personal gratification or discretionary purchases by your child.

The weight of one of these requests is often compounded by the fact emotional issues are attached to your child’s request for money. In the end, the decision to provide financial assistance must be determined in large part by a cold hard analysis of your financial situation and your financial wherewithal to provide assistance, especially where the request could jeopardize your retirement. I discuss this is further detail below.

Requests by parents (or more likely, non-requests, but you discover a need) tend to be more readily accepted. This is just simply because the person is your parent and typically you will want to repay them for everything they have done for you. But as with a child, you still need to consider your financial position before making any emotional decision. 

Seed - Psst, I have a Great Idea


Some examples of where a child’s request for money is seed based are the following:

a) They require money to start a business

b) They require money to expand an ongoing business.

c) They require money to go back to school to upgrade their education

Requests for seed money can carry significant risk. Often money advanced or loaned for a seed money request cannot be repaid. These requests can create significant internal turmoil for parents. Many parents have always told their children to think for themselves and to reach the stars. When a child wants seed money, it often revolves around the child starting a new venture or investing in a business. These requests are often gut wrenching for the parent, as they struggle with whether they a) can afford to lend of gift money to their child and b) often the parent has preached initiative and grabbing the brass ring when the chance presents itself and now they may be roadblock to following through on that initiative and finally c) parents are often aware many business start-ups go bankrupt, so practically it is a huge risk to loan or gift seed money for a new business.

Greed - I am a Money Leech, I Admit It


Some examples of where a child’s request for money is greed based are the following:

a) Need money for a vacation.

b) Need money for personal vanity (such as cosmetic surgery)

c) Need money for a discretionary purchase such as a large screen TV or car.

Requests for greed money are often rejected by objective parents, but many parents will do anything for their kids, even if it is detrimental to their financial future and for non-necessities. Many of these greed requests fuel the notion that some children just see their parents as a bank. Many of these same children are often characterized as the type of children that will hover over your body waiting for you to die. While this view is extreme, it is not without basis. We all have observed children who have had fractured or little or no relationships with their parents over the years, suddenly arrive on the scene asking for money or when their parents take ill.

Separating Emotion from Finance


The decision to acquiesce to a request for money from a child or a parent needs to be analyzed as a purely financial decision. Can you afford the financial request or not?

Where it is determined you have the financial wherewithal to grant a request for money, you must then make an emotional decision as to whether you feel the request is warranted or of such an urgent nature you need to seriously consider granting the request. Where you have the financial ability to provide funds, the decision can easily be rationalized as an early inheritance or money you can afford to lose. The issue is these cases is often more philosophical, do you make the child stand on their own or assist them?

The more typical and gut-wrenching cases are where it is determined you do not have the financial wherewithal and you must decide if you are you willing to jeopardize your retirement to assist a child financially.

Let me speak to my Accountant and Financial Planner

Any parent or child considering granting a request for money to a child or parent needs to review the issue with their accountant and/or their financial planner or engage such. Your accountant or financial planner has the ability to be detached and provide objective advice from both a financial perspective and emotional perspective.

For some people, money is never the issue. But for most, it is a significant issue, even where you have saved enough for retirement. Your accountant or financial planner can run several financial scenarios that will consider the impact of making a loan/gift on your retirement funding and allow you to review the financial consequences of advancing the money (assuming you will never see it back). For many people, the answer will never be entirely clear from a financial perspective, as the elephant in the room is always longevity. It is difficult enough to plan for retirement when you don’t know how long you will live, but that decision is further complicated when you must reduce your retirement nest egg for an unexpected cash request from a child or parent. However, at minimum you need to review the impact of making any significant gift upon different retirement scenarios.

Surprisingly, the few times where I have been involved in these type situations, it is often not just my financial expertise that is of value, but the fact I can relay my experience in other similar situations. As I am not emotionally attached, I can coldly state on a no-names basis what I have that observed in other similar family situations.

You mean I Must Speak to my Lawyer also?

If it is not bad enough I have already told you to pay an accountant and/or financial planner for objective advice, you likely will also need to spend more money to amend your will to account for the gift or loan. Your lawyer may do this via a Hotchpot clause, see this blog post on the topic or a simple promissory note.

The Tugging at my Heart (Purse) Strings is too Much

Some people will realize after meeting with their accountant or financial planner that they cannot afford to assist their child or parent. They often feel guilty and/or sad they cannot assist; or in some cases dejected they did not achieve a greater level of financial successes such that they could assist their child or parent. But, for financial reasons, the discussion ends as it is clear they cannot afford to assist their child or parent.

Yet, over the years, I have seen several parents assist a child financially when they cannot afford to do so. I call this the "blood is thicker than water” scenario. These parents cannot stand to see their child suffer financially or health wise and despite the objections of their accountants, friends, family etc. make the gift or loan. There is not much you can do or say in these circumstances, except try and help assist the child or parent to reduce costs where plausible and to review if there are any ways to make up for the loss of retirement funds. In the end, their child’s or parent's well-being far outweighs their concern for their own financial well-being.

There you have it, my discussion on asking for money. I still think someone should write a book on the topic, it just will not be me.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, June 18, 2018

The Taboo of Asking for Money Within a Family

In May of 2017, I noted that I had given up on writing a book on The Taboo of Money. In that post I noted I would be posting part of the second intended chapter on "Asking For Money: The Intergenerational Communication Gap". Today and next week I post an edited down version of this intended chapter.

Asking For Money: The Intergenerational Communication Gap


The Taboo!

Probably one of the most frowned upon money taboos is asking for money, whether as a loan or a gift. This can be a child asking a parent for money or surprising to some, a parent asking a child for money. This taboo can encompass everything from a child in an abusive marriage who is dependent upon the abusive spouse’s income and thus cannot leave the marriage, to a parent too proud to admit they do not have the necessary funds for retirement and are reverse mortgaging their house to survive.

Broaching the money taboo by the party in need requires a leap of faith that their family will not judge their current financial or living situation and not consider the request a money grab.

I have broken down this taboo into three categories, which will be explained in greater detail in the second post:

1. Need
2. Seed
3. Greed

Reasons for the Taboo

This taboo is all about our pride and possible embarrassment. Most of us are brought up to be self-sufficient and responsible for our own financial well-being. To ask for money is admitting we have failed at being self-sufficient, at least in the short-term. We may be embarrassed because we are asking a parent or a child for money, but in many circumstances, the issue that has caused the necessity to request money is embarrassing.

The reasons a child may ask a parent for money range from the fact they have lost their job, to they have a substance abuse or gambling problem, to they are involved in an abusive marriage, to they require money to start a business, to finally, they just want money to enjoy themselves.

A parent may need money because of poor retirement planning, physical or medical issues, elder abuse and economic situations beyond their control, such as the low interest environment we have faced for the last several years.

Some of the excuses I have heard for children not asking their parents for money include:

1. They will think me a complete failure.
2. My parents told me to get a profession as a fallback; now that my business has failed I don’t have a fallback. I will just be asking for a “told you so”.
3. My parents worked their whole life for what they have; I have no right to infringe upon their retirement earnings.
4. My parents will think I am just trying to “steal their money from them”.
5. My parent’s perception of me will be shattered.
6. The reason I need money is personal, I don’t really want to discuss it with my parents.
7. My father regaled me with stories of how he was given nothing from his parents and was self-made. He will not be able to understand that I am not from the same cut of cloth as he.

Some excuses I have heard for parents not asking their children for money (these have been few and far between):

1. I am my son’s/daughter’s role model, if I ask him/her for money he/she will think less of me.
2. I have told my children their whole life to not spend more than they earn and to save for retirement. How can I now ask them for money?
3. I can reverse mortgage my house and they will never know until I pass away that I had financial issues.
4. My children have their own job and family issues; I do not need to burden them with mine.
5. I lived through the war with very little; I can do it one more time.
6. I have lived to provide my children a better life than mine; I will not do anything that impacts that objective.

Next week I finish this discussion looking into why people may ask for money.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, June 4, 2018

BDO Canada LLP Retirement Survey Report - More Financial Survey Results

You may remember my November post highlighting the initial results of a financial survey conducted by BDO Canada LLP. These findings offered a trove of valuable information on the wealth management journey for Canadian business owners. They confirmed much of what I had been hearing in conversation with clients but also offered important new insights.

The financial survey produced such robust data that BDO created two reports. The second one — The Retirement Planning Report — is now available as a free download and reveals additional insights on how all Canadians manage their wealth and plan for retirement.

The survey that produced these two reports has strong ties to The Blunt Bean Counter. Many of you took part in this study — thank you very much for your tremendous participation and input. Some of you received a free copy of my book Let’s Get Blunt About Your Financial Affairs as a token of thanks for responding to the questionnaire. In total, almost 1000 Canadians took part in the study.

Summer beckons from just around the corner. For those taking time away from the office, the break provides a great opportunity to reflect on the big picture: how we envision retirement, how our finances align with that vision, and where family fits into the picture.

This new BDO report will help you focus on what matters to you in retirement and on your preparedness. Jonathan Townsend, the National Wealth Advisory Services leader for BDO Canada LLP, provides a synopsis of the report in his guest post below.

In conjunction with the BDO report, you may want to read, re-read or reference the six-part series I had on "How Much Money do I Need to Retire? Heck if I Know or Anyone Else Does!" The links for the blog posts are down the right-hand side of this page under the Retirement heading.

Retirement Planning Report   By Jonathan Townsend


Retirement sometimes appears to Canadians as a moving target. Like all plans for the future, it depends on variables that we can’t fully control. We do our best to cover all the circumstances, but life intervenes and renders our financial plans out-of-date.

“How much do people actually need to save?” Mark Goodfield in the report says the following: “That is the million-dollar question — with no clear-cut answer. At the end of the day, Canadians need to evaluate their individual needs with the help of a trusted advisor.”

That is why expectations play such a large role in successful retirement planning. In the 1980s, many Canadians believed their investments would support retirement at 55. Today’s pre-retirees have adjusted their retirement dates upward to fit the changing times. The average age of retirement climbed from 61 in 2005 to 63 in 2015, according to Statistics Canada.

BDO’s new Retirement Planning Report reveals valuable data on a topic that can be difficult to access: how Canadians themselves see retirement. By turning the spotlight on expectations, we can better understand the entire planning process.

Here are some key report findings that caught my attention:

  • On preparedness — About half of survey respondents have prepared a financial plan. Of those respondents with a plan, almost three-quarters had a professional advisor prepare the plan.
  • On health care — Long-term health care placed second on the list of respondents’ retirement concerns, but almost 4 of 5 of respondents have done nothing to prepare for health care costs in retirement.
  • On family — Canadians in the so-called sandwich generation raise their children while looking after their parents. Fifteen percent of respondents in our study say they are supporting their parents financially. As longevity continues to increase, Canadians may need to calibrate their retirement plans to account for both slices of bread in the family sandwich. Rob Carrick of The Globe and Mail found this topic of interest, especially the fact that 10% of Canadians support both their parents and children and discussed the study here in his Carrick on Money newsletter.
  • On pension plans — Companies have shifted more of the savings burden to employees by moving to defined contribution plans. In the longer term, more and more Canadians may have no employer-sponsored plan at all. Contract and part-time work are accounting for a larger share of the labour market.
The findings and strategies highlighted in the report provide actionable tips that you can incorporate into your own successful planning. I invite you to download the report here.

Jonathan Townsend is the National Wealth Advisory Leader at BDO Canada LLP. If you have any questions, please contact him at 519-432-5534 or jtownsend@bdo.ca.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.