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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Managing financial irresponsibility

Key takeaways

  • Financial irresponsibility means actions or habits that undermine your financial well-being and long-term stability.
  • This can include overspending on non-essential items, neglecting to save for emergencies or retirement, living beyond your means, or accumulating debt through credit cards or loans.
  • Certain life circumstances or stages, like living in the sandwich generation, could make you more susceptible to financial irresponsibility.

The "sandwich generation" refers to being "sandwiched" between the financial responsibilities of caring for both your aging parents and your own children. This often involves several financial obligations that can be overwhelming to manage. 

In addition to your own household expenses, if you’re living in the sandwich generation, you may need to navigate discussions around finances with your aging parents, save for your children's education, housing costs, manage debt, save for retirement, maintain emergency funds, and estate planning.

Your financial responsibilities could include monthly bills, mortgage payments, groceries, healthcare expenses, and other day-to-day necessities. Balancing these competing financial obligations while ensuring the well-being of both generations can present significant challenges, especially if you or members for your family struggle with financial irresponsibility.

What can cause financial irresponsibility?

  • Poor understanding of financial concepts: Without a solid foundation in financial literacy, you or members of your family may struggle to make informed decisions about budgeting, saving, investing, and managing debt. This knowledge gap can result in poor financial choices and missed opportunities for building wealth and financial security.
  • Unexpected life events: Sudden and unexpected life events such as job loss, illness, divorce, or the death of a family member can disrupt financial stability and strain resources. Without proper preparation or emergency savings, you may resort to irresponsible financial behaviours, such as borrowing money, neglecting bills, or depleting savings.
  • Bad spending habits: Habits like impulse buying, overspending on non-essential items, and living beyond your means can quickly drain your finances and lead to debt accumulation. Also, without an effective budget or a way to track expenses, you could increase these habits, making it challenging to prioritize saving and investing for long-term goals.
  • Societal pressures and influences: Social expectations, peer pressure, and cultural norms can also create significant influence on you or your family members spending habits and financial decisions. The pressure to maintain a certain lifestyle or keep up with peers could lead to overspending and prioritizing immediate gratification over the long-term.
  • Psychological factors: Psychological biases and emotional triggers could be impairing your ability to make rational financial decisions. A lack of self-control, cognitive biases, and emotional spending can result in impulsive behaviour, poor judgment, and difficulty sticking to your financial plans.

Let’s look at an example. Meet Sarah, a 45-year-old woman who is financially supporting her aging parents while also raising her 2 children. Sarah had been managing her finances reasonably well until she experienced an unexpected life event: she lost her job due to downsizing at her company. Without her regular income, Sarah suddenly found herself struggling to make ends meet.

As a result of her job loss:

  • Borrowing money: Sarah had to borrow $5,000 from her emergency fund to cover immediate expenses like rent, groceries, and utilities while she searched for a new job.
  • Neglecting bills: With her reduced income, Sarah started neglecting some of her bills to prioritize essentials. She fell behind on her car payment, resulting in a late fee of $50.
  • Credit card debt: To bridge the gap between expenses and income, Sarah relied heavily on her credit cards. She accumulated $3,000 in credit card debt over the next few months, primarily used for groceries, gas, and other necessities.
  • Depleting savings: As her job search stretched on longer than expected, Sarah continued to dip into her emergency fund and savings accounts to cover living expenses. She withdrew an additional $2,000 from her savings account, leaving her with significantly depleted reserves.

In total, Sarah's unexpected job loss resulted in her borrowing $5,000 from her emergency fund, accumulating $3,000 in credit card debt, falling behind on bills, and depleting $2,000 from her savings, totalling $10,000 in financial setbacks.

How do poor financial habits have an impact? 

  • Strain on relationships: Balancing financial responsibilities for both aging parents and dependent children can strain relationships within your family. Conflicts could arise from disagreements over financial decisions, allocation of money, and differing priorities. Tensions could also escalate as you struggle to meet the needs and expectations of multiple generations, leading to resentment and strain on your family bond. It’s essential to make sure you’re taking care of your mental well-being
  • Financial burdens: Supporting your aging parents financially, including covering healthcare expenses, assisted living costs, and long-term care, can impose a significant financial burden. Also, providing for your dependent children involves expenses such as education costs, extracurricular activities, and everyday necessities. The combined effect of these financial obligations could create a heavy burden on your own budget, making it challenging to save for your retirement or invest in your long-term goals. 
  • Stress and anxiety: Managing multiple financial responsibilities could lead you to experience heightened anxiety and stress levels. The constant pressure to meet competing financial demands, coupled with uncertainty about the future, can lead you to become mentally and physically overwhelmed. Financial stress can show in several ways, including sleep disturbances, mood swings, and difficulty concentrating, impacting your overall well-being and quality of life.
  • Challenges in planning for the future: It can be challenging to balance immediate financial needs with long-term planning. The focus on meeting current financial obligations may overshadow your effort to save for retirement, invest in personal goals, or plan for your future. Delayed retirement planning could result in financial insecurity later in your life, adding to the cycle of financial stress and strain for future generations.

How can you deal with and manage financial irresponsibility?

  • Support and education: Look for financial literacy workshops or courses to improve your understanding of financial concepts or turn to trusted friends or family members for advice and guidance on managing finances. You can also take advantage of online resources and tools available for free to enhance your financial knowledge and skills.
  • Create boundaries: Establish spending limits to ensure expenses stay within your budget. Develop a budgeting system to track income and expenses and allocate funds accordingly. You can also learn to say no to financial requests or obligations that exceed your ability to comfortably afford them.
  • Get professional help: It can be beneficial for you to get help from an advisor that can provide you with personalized guidance and strategies tailored to your specific financial situation. They can help you get back on track financially. 
  • Accountability: Regularly check in with a financial mentor, partner, or accountability buddy to review progress, discuss challenges, and celebrate achievements. Be sure to set clear and measurable financial goals for yourself and hold yourself accountable for taking the necessary steps to achieve them. You could also consider joining a support group or community of like-minded people who can offer encouragement, motivation, and advice on managing finances.
  • Dealing with elderly parents: Engage in open and honest communication with your elderly parents about financial matters, showing empathy and understanding. Establish clear expectations regarding financial responsibilities and decisions, ensuring everyone is on the same page and understands their role. If your elderly parents are still living in their home and have too much space, have the conversation about downsizing. 
  • Dealing with adult children: Set boundaries with your adult children to encourage independence and responsibility. Provide guidance and support to help your adult children make informed financial decisions and develop good money habits for their own future.

By recognizing the influences and taking proactive steps to improve your financial literacy, develop healthy spending habits, and build emergency savings, you can overcome financial irresponsibility and work towards achieving greater security for yourself and your loved ones.

What's next?

  • Assess your financial situation. Review your income, expenses, and savings to gain a clear understanding of your financial standing.
  • Consider speaking with an advisor or tax professional that specializes in caregiver financial planning.

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.