In theory, August should be a month when not much happens and often that is the case. Stock market trading volumes tend to be light and if August starts calm it will tend to stay calm. But bad things can happen and when they do, they can have profound consequences.

Henry Allen, macro strategist at Deutsche Bank, says the late-summer period is often a difficult time for markets. He notes the average spike in the VIX index (which measures financial market volatility and is commonly known as Wall Street’s Fear Index) has been higher in the July to September period than any other quarter.

So, the markets are right to tread carefully in August. In some years it is the month when a crisis erupts, in others it is when strains become apparent that eventually lead to crises in September – if anything a month with an even worse reputation for trouble.

At the end of July 1990, few were expecting Saddam Hussein’s Iraq to invade Kuwait the following month. But on 2 August, Iraq’s troops crossed the border, triggering a threefold increase in oil prices. This added to already strong cost of living pressures in the west, including Britain, where the annual inflation rate climbed above 10%. Kuwait was swiftly liberated by a US-led international coalition but at a cost. As is often the case, a higher oil price meant recession in the developed west.

When the first Gulf war started in 1990, the Soviet Union was on its last legs but by the time of the next August crisis communism had collapsed. A deep slump was followed in the early 1990s by heavy foreign borrowing to finance economic recovery and by the summer of 1998 the government of President Boris Yeltsin was struggling to pay its debts. By August, after more than a year resisting the pressure to devalue the rouble, Yeltsin capitulated. Russia, as the Soviet Union was now known, devalued and defaulted on its overseas debt. Investors who had bet against a default lost heavily, with the most significant casualty a US hedge fund – Long Term Capital Management – which collapsed and had to be bailed out by a consortium of 14 banks in a deal organised by the US Federal Reserve.

Fears of a market meltdown proved unfounded on this occasion but instead provided a warning of what was to come less than a decade later in August 2007. Few realised it at the time but the decision by the French bank BNP Paribas to close three of its hedge funds because of losses on sub-prime US mortgages would have momentous consequences.

Banks, including all the world’s biggest, had taken enormous punts on the American housing market, punts that started to go sour as US interest rates were ratcheted up. To make matters worse, the widespread use of complex financial instruments – known as derivatives – meant it was unclear how big the losses were and how heavily individual banks were exposed.

Given the uncertainty, banks stopped lending to each other and credit flows dried up. The following month customers queued outside branches of Northern Rock as the UK suffered the first run on a high street bank in almost 150 years.

August 2008 was the lull before the storm. Early in the month, the Bank of England debated whether to raise interest rates in response to rising inflation. But the cracks in the global financial system were becoming ever wider. On 15 September Lehman Brothers went bankrupt after no buyer could be found for the US investment bank.

With investors in the dark about which bank might be next to fall, panic set in. Fears that the wholesale collapse of the banking system might lead to a second Great Depression prompted emergency action from governments around the world. Banks were either bailed out or nationalised, interest rates were slashed, and central banks responded to a dearth of private credit by creating new electronic money through the process known as quantitative easing. A return to the 1930s was avoided – but only just.

The UK has a special reason for being anxious in August. There have been four devaluations of the pound in the past 100 years – 1931, 1949, 1967 and 1992 – and three of them have taken place in September. In every case the writing was on the wall in August.

In 1992, for example, John Major’s government spent the month struggling to maintain the pound in the exchange rate mechanism (ERM), a system under which European countries had to peg their currencies to the German mark even if it meant raising interest rates in a recession. George Soros and other currency speculators spent the month building up positions in anticipation that the UK would eventually leave the ERM, which it did on 16 September 1992, known as Black Wednesday.

Not every late summer is as dramatic as 1990, 1992, 2007 or 2008, but the frequency with which crises have occurred meant this week’s mini crash set alarm bells clanging.

As Holger Schmieding, chief economist at Berenberg bank, said: “It is almost a pattern. Not for the first time, equity markets have fallen sharply just before the end of my summer holidays.”

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Here are the 10 crucial money lessons you should teach your kids.

1. Help Them Organize Cash With Piggy Banks

Kids often find it easier to understand the concept of money when working with tangible objects. Hence, one of the best ways to introduce them to financial responsibility is to help them organize the cash they receive in multiple piggy banks.

Instead of using only one piggy bank for “savings,” which is the classic approach, set up at least three piggy banks so you can designate each one for specific purposes such as “savings,” “spending,” “giving,” or any financial goal.

When your kids receive cash from their allowances or gifts, encourage them to separate their money into the piggy banks.

2. Teach Them About Budgeting

When your child understands that money serves multiple purposes, you can teach them about budgeting.

Tell them the importance of setting aside specific amounts for different spending categories and why following a budget is essential.

As much as possible, you want them to realize that budgets are a crucial stepping stone toward financial success and should not be ignored.

3. Give Them A Strategic Allowance

While kids typically see allowances as money to spend freely, try to encourage your kids to view allowances as earned “income” that should be used to pay for expenses.

Every time you hand over their allowances, make it clear that you expect them to manage their money responsibly. Guide them into creating a reasonable budget, but also allow them full control over how they spend their money.

If they fall short of their budget, create “consequences” instead of just giving them more money. For instance, make them do chores for extra cash or “loan” them amounts that must be repaid by their next allowance day.

4. Teach Them About Wants Vs. Needs

Help your kids distinguish between their wants and needs and why they should prioritize the latter.

You can start by teaching what basic needs are, such as clothing, food, and shelter, and let them know that all the extras, such as movie tickets and toys, fall under their wants.

5. Encourage Them To Save For Future Purchases

It may be tempting to cover every significant expense involving your kids. However, letting them be involved in saving for both small and large purchases can be beneficial.

To help them reach the goal faster, consider increasing their allowances or letting them earn extra through chores. However, resist the urge to do all the work for them.

6. Teach Them About Investing

Teach your kids the power of investing money, starting with concepts such as compound interest. You don’t necessarily need to explain complex investing formulas, but you can educate them on how money can grow over time through investing.

Even for adults, investing is a difficult concept, so don’t expect your kids to learn it overnight. Consider sharing your own investment strategies along the way.

7. Show Them How Credit Cards And Debt Work

Americans now collectively have over $1 trillion in credit card debt, and interest rates are approaching 20%, an all-time high.

One of the best ways to ensure your kid doesn’t fall into excessive debt is to show them how credit cards work early in life. Teach them what credit cards are, why they exist, and when it’s best to use them, addressing both the pros and cons of the credit system.

8. Teach Them The Importance Of Giving

Once your kids know more about spending, saving, and investing money wisely, remember to teach them the importance of generosity and giving to others. Let them choose the people they want to show appreciation to through gifts or charities they want to donate to.

9. Open A Bank Account With Them

Open simple savings accounts for your kids before they’re old enough to work part-time jobs. Having a bank account will prepare them to manage their future finances and instill early habits of financial responsibility.

10. Make It Fun

Lastly, but perhaps the most important tip, don’t forget to make money lessons fun for your kids. Whether you have a young child or a teenager, everybody learns better and faster if you make it enjoyable and exciting.

Avoid using abstract lessons alone. Some of my favorite activities are working with real cash. I pretend I’m a bank by loaning my kid small amounts and teaching him about investing using interactive games.

By Enoch Omololu, Contributor

© 2024 Forbes Media LLC. All Rights Reserved

This Forbes article was legally licensed through AdvisorStream.

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Many people assume that once their financial plan has been created, they can ‘set and forget’. However, there are several reasons why it’s necessary to update your plan as you progress along your financial planning journey:

Personal changes: A change in marital status for example, can have significant implications for financial planning. Something like a serious illness or disability may require reassessment of insurance coverage, estate planning, and long-term financial goals.

Lifestyle changes: Paying off your mortgage for example, will leave you with additional capital to consider. Or if you have plans for a major new purchase, such as buying a car, it needs to be evaluated within the context of your financial goals and cash flow.

Changes in legislation: Updates to tax laws can also impact your tax liability, deductions, and retirement planning strategies, requiring adjustments to your financial plan.

Broadly speaking, your review is your chance to check in on your strategy to see if it’s still on track (and that we’re doing our job!). So let’s take a look at some of these reasons to attend your review in more depth:

1. Understanding your financial health: Financial reviews offer a comprehensive snapshot of your current financial status. By attending these sessions, you gain valuable insights into the performance of your investments, asset allocations, and overall portfolio health. Understanding where you stand financially empowers you to make informed decisions and take proactive steps towards achieving your goals.
2. Aligning goals and strategies: Your financial goals are the cornerstone of your investment journey. Attending reviews allows you to revisit and refine these goals in light of changing circumstances or priorities. By actively participating in these discussions, you can ensure that your strategies are aligned with your aspirations, risk tolerance, and timeline, setting the stage for a more successful investment experience.
3. Seizing opportunities and mitigating risks: Financial markets are dynamic, presenting both opportunities and risks. By attending reviews, you have the chance to stay informed about market developments, emerging trends, and potential risks to your portfolio. This knowledge equips you to make timely adjustments, make the most of opportunities, and mitigate potential losses, ultimately safeguarding your financial wellbeing.
4. Strengthening communication and trust: Open communication is the bedrock of any successful adviser/client relationship. Attending reviews fosters transparent dialogue between you and us, allowing for candid discussions about your financial concerns, questions, and aspirations. This level of engagement ensures you feel supported and informed every step of the way.
5. Enhancing financial literacy: Financial reviews are not just about reviewing numbers; they’re about empowering you with financial knowledge. By actively participating in these sessions, you gain a deeper understanding of investment principles, strategies, and market dynamics. This knowledge not only enhances your ability to make informed decisions but also strengthens your overall financial literacy, empowering you to take control of your financial future.
6. Holding us accountable: As a client, you have the right to expect excellence from us. Attending reviews allows you to hold us accountable, ensuring that we continue to act in your best interests. If you have concerns or questions about your portfolio or investment strategy, reviews provide a platform to address them proactively, ultimately enhancing the effectiveness of your partnership with us.

In conclusion, attending financial reviews is not a passive exercise but a proactive step towards achieving your financial goals.

Although it’s helpful to find out about big changes in your circumstances when they happen, the point of an annual review is to make sure nothing slips through the cracks. By contrast, if you only came to us once in a while for an ad-hoc service, it’s very likely you’d be putting off talking about something until it was too late. The advantage of a regular check in is that we can catch things before they happen. We look forward to seeing you at your next review!

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Currently, 50 per cent of a person’s capital gains in a given year are taxable as income. As of June 25, two-thirds of capital gains over $250,000 will be taxable under new rules introduced in the 2024 federal budget. The policy will have the greatest effect on the wealthiest Canadians who have large amounts of money tied to investment earnings that are outside of sheltered tax accounts, such as a registered retirement savings plan or tax-free savings accounts.

he government estimates that just over 0.1 per cent of Canadians will be affected by the tax change this year. However, many more Canadians could face tax increases for a year where they have a big financial event, such as the sale of an investment property, family cottage or a large one-time selloff of a person’s retirement portfolio.

“I think the statement from [Deputy Prime Minister] Chrystia Freeland that there will be no increase in taxes for the middle class is not exactly correct,” said John Oakey, vice-president of taxation at the Chartered Professional Accountants of Canada.

“Those one-time events that create a lot of capital gains in one year can push people in the middle class above the threshold and increase their taxes.”

Brian Ernewein, a senior tax adviser with KPMG, said there may be little that Canadians can do to mitigate their new tax bill when it comes to selling housing that does not qualify as their primary residence.

Still, John Pasalis, president of Realosophy Realty in Toronto, said more investors might now be inclined to purchase an investment home as an individual, rather than a corporation, since the proposed tax increases are even larger for corporations and trusts. Under the new rules, corporations will have all their capital gains taxed at the 66-per-cent rate, rather than just the gains over $250,000 as for individuals.

In the short term, there may be a marginal increase in people who are more motivated to sell if they were already considering offloading an investment property. But the June 25 deadline to sell is a very short window to list a home, find a buyer and close the deal.

Meanwhile, Mr. Oakey said Canadians that could book more than $250,000 in capital gains on a large stock sell-off will fall into two groups: those who need to sell immediately, and those who have time to plan and avoid higher tax rates.

Very few Canadians would have $250,000 of taxable capital gains, since the lion’s share of Canadians invest in tax-sheltered accounts like RRSPs and TFSAs, which are exempt from capital gains taxes and where people can accumulate hundreds of thousands of dollars in contribution room over the course of their working life.

Some diligent savers may max out their tax-sheltered accounts and accrue gains in non-sheltered accounts that are over the $250,000 threshold. If those investors ever need to sell their assets immediately, an increased tax bill may be unavoidable.

But people with time on their side have some options, the simplest of which is selling your assets over the course of many years so that your capital gains remain under $250,000 in each year.

Aaron Hector, a Calgary-based financial planner with CWB Wealth, said estate planning could become one of the biggest concerns for people who have invested outside of tax-sheltered accounts, since their investments are essentially sold and the tax is realized at the time of their death.

“This tax change is going to be staring at them in the face, and what they could do is, every year, sell enough of their portfolio to get close to the $250,000 capital gain limit without going over,” Mr. Hector said.

“It’s a matter of averaging your way out of these positions over many years so that you don’t have a big event in one single year, whether that’s when you pass away or otherwise.”

When it comes to the government’s options for increasing taxes, Mr. Oakey said increasing capital gains in this method is much simpler than introducing a wealth tax, and will be less of a deterrent on investment for Canadian companies than a excess-profits tax for corporations.

More bluntly, Mr. Ernewein called it the “less bad” option compared with other methods of increasing taxes.

Mr. Pasalis said it’s unlikely the changes will have a long term impact on investor behaviour in the real estate market because the change in taxation is too small.

“People are still pretty bullish on real estate and it’s only going to impact gains over $250,000 so I don’t think it’s going to ice the exuberance and excitement that people have with real estate in Canada,” Mr. Pasalis said.

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