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 BDO. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, September 30, 2019

Should I pay for my child’s university education?

Numbers are typically the focus of retirement planning. Will I have enough of a nest egg to support myself? When do I withdraw my retirement savings? Should I start receiving my Canada Pension Plan benefit early, before turning 65? These questions are easily answered by an advisor — preferably one who is good with financial planning software.

But advisors and clients often overlook the softer side of retirement planning, where human relationships and feelings come into play. One common issue on this front is adult children and their continued financial dependence on their parents – especially when deciding how to pay for a child’s post-secondary education.

This week BDO Canada LLP senior wealth advisor Carmen McHale explains why this common dynamic can be so fraught from both an emotional and financial point of view – and how to tackle it.

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By Carmen McHale

Most parents I work with have a hard time saying no to their children – their car payments and cellphone bills are covered by Mom and Dad well after the children are working and bringing in their own money. Parents pay for the wedding, help with the down payment on the house, pay for the master’s degree that never seems to end. They often ask: Should I keep my kids on the family payroll?

A recent survey by FP Canada found that more than a third of Canadian parents with children 18 or older have helped their children pay their rent.

The problem with this is twofold: first, your kids do not learn responsibility and are unable to budget for themselves because they have never learned the value of a dollar. The other problem can be much serious – you have spent so much money on your kids that you have put your own retirement in jeopardy.

As an example: The same FP Canada study reports that while less than 10% of parents with older children have used retirement funds to help them purchase a home, almost 40% of parents with children under 18 expect to postpone retirement to help their children purchase a home.

A report from Merrill Lynch also has some stark data points for parents to review. The study found that parents are spending twice as much on their adult children as they are putting away for retirement. Overall, it said, 79% of parents continue to give money to their adult children age 18 to 34.

What about the master’s degree? Most parents I work with want to pay for their children’s education, but covering costs for more than the four years of undergraduate studies is another story.


Multiple children, multiple tuition bills


I frequently run across a situation like this: the oldest child has just finished a seven-year post-secondary program and now the younger sibling wants to go to dental school (which would bring to eight the tally of years in school after graduating high school). I will assume for purposes of this discussion that any RESPs will be used for undergraduate or have been exhausted already.

Couples are often not prepared for these expenses, and now there is a dilemma. They have already covered all expenses for their first child, which could be upwards of $350,000 including living expenses (yes, $50,000 per year for seven years). Parents often feel guilty if they don’t treat their kids equally – what if they can’t afford the second child’s education? They have already paid the full way for the sibling. What does the couple do? They will be delaying their retirement by several years by funding the full bill. Will Mom and Dad have to delay their retirement? Even with this knowledge, they feel they are in a situation where it is too late to change course – family harmony is at stake.

Parents can handle this type of situation in a few ways. Sometimes they can guarantee loans for the dental school costs for the child. They can also equalize the extra school costs in their will or by reducing their financial assistance for the first child in other areas – like their wedding or house purchase.

Two overarching rules will ease the challenge. First of all, plan your approach in advance. And second, commit your resources responsibly. There is nothing wrong with pitching in to help our kids financially as they move through key stages in their life. Housing costs continue to rise, especially in many urban areas, and some courses of studies end up burdening students with significant debt loads. But parents also need to reality-check their financial support – and make sure it won’t put their own retirement at risk.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Monday, September 16, 2019

Investing Like Your Grandmother (or Grandfather). The Results May Surprise You

When I was a young accountant and happened upon an estate return, I was often amazed at how much wealth the grandmother had accumulated at death. This applied to grandfathers too, but women tend to live longer, so I noticed the tendency more with grandmothers. The accumulated wealth was typically in conservative marketable securities bought over many years.


What I found remarkable, as I saw this time and time again, was that blue-chip stocks dominated these portfolios. (Mutual funds were just coming into vogue and no one had heard of an exchange traded fund (ETF).) Each portfolio had the big Canadian banks, insurance companies, utility companies and the Bell Canadas, Canadian Tires and Thomsons of the Canadian stock universe, plus some large high-quality U.S. stocks sprinkled in. Being a na├»ve and arrogant young investor, I somewhat derisively at the time called these stock holdings “grandmother portfolios.”

As I look back, an older me should have given my younger self a good swat upside the head, as these portfolios hit on most of the critical tips investment managers and experts still suggest today (other than maybe a little more global diversification and possibly some alternative investments):
  • They were fairly well diversified.
  • They very rarely turned over.
  • They contained stocks that generally paid dividends that grew over time.

Shredding my old tax returns – an eye-opening experience


So why am I talking about grandmother portfolios? Well, a couple months ago I followed my own advice and shredded some of my older personal tax returns. While shredding the returns, I entertained myself by looking at the income earned each year and the capital gains (Schedule 3), which detailed my stock dispositions for each year.

I have always liked to have some risk in my portfolio, and over the years have taken some shots with disruptive technology stocks, “find that big gold mine” stocks and “let’s hit the gusher” oil stocks, among other rather poor stock selections. However, I was astounded when I looked at how many of these flyers resulted in capital losses on my old returns.

The technology stocks included such household names as:
  • Samsys Technologies (RFID readers)
  • International Verifact (forerunners of point-of-sale payment terminals)
  • GenSci Regeneratrion (bone repair and generation for dental use)
  • Zeox Inc. (using Zeolite for environmental waste)
Some of the crazy gold picks included such sterling names as:
  • International Pursuit
  • Gerle Gold (actually looking for diamonds in the Northwest Territories)
  • South Pacific Resources (a stock that followed in the draft of Bre-X when it was going up)
And the oil stocks included:
  • Dome Petroleum (a famous oil stock for those of you of my vintage)
  • Mart Resources (a Nigerian oil play)
The above names are meaningless, but entertaining to me and maybe a couple readers. But what shocked me about my shredding exercise was how many flyers I had actually gone for over the years. (I actually hit on a couple others, but that was luck and not relevant to this post.)

My point is, I was shocked at the time and effort — let alone the money — I wasted trying to chase down the next big thing. 

Moral of the Story


While I have slanted this post on purpose to make a point (I typically also had a substantial part of my portfolio in quality stocks and alike), in retrospect I would have had a larger nest egg if I had stayed away from the above speculative flyers and only bought higher grade stocks.

As an accountant I cannot tell you what stocks and bonds to purchase. But after my shredding exercise, I would suggest the following general investing principles be considered:

1. Buy high-quality stocks, ETFs or mutual funds.

2. Keep the turnover of these securities to a minimum.

3. Diversify across countries and sectors.

4. Consider stocks that pay dividends that grow over time.

5. Keep your flyers to a minimum — or better yet, don’t take any flyers.

In conclusion, invest like your grandmother.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Monday, September 2, 2019

The Best of The Blunt Bean Counter - The Taboo of Asking Family Members for Money

This summer I am posting the best of The Blunt Bean Counter blog while I work on my golf game. I actually just returned from a golf trip to Bandon Dunes in Oregon. It was pretty awesome and I may post a future blog on the trip.

Today, I am re-posting a June 2018 blog on the taboo of asking for money within a family. Which, to say the least, is a very touchy subject.

The blog will return with new original material starting on September 16th.

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Asking for money


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 is explained in greater detail in this 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.

As noted above, I had a second post on this topic, if you wish to read on which is located here.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.