Whenever you ask for financial advice, the magic word always seems to be save. The list of things to save for never seems to end. Save for university. Save for a mortgage. Save for a car. Possibly the most headache-inducing of all — save for retirement.
Meanwhile, if the statistics are anything to go by, today’s younger generation doesn’t seem to be all that ready to take the reins of its money. Which is alarming, because the need to be fiscally responsible is more important than ever.
The average university student graduates with an estimated $28,000 in debt, and the youth unemployment rate remains at just under 15 per cent. It is unexpected, then, that Gen Y is also the fastest rising demographic for luxury spending on brand items, travel and eating out, and the average high school student puts saving for clothes above saving for education.
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Generation Y gets a bit of a bad reputation for not being able to handle their finances, but it may be a reputation that is deserved. Here are 10 things that millennials are doing wrong with their money and how they could do better.
A survey from the Canadian Institute of Chartered Accountants (CICA) shows that many young people think they are super savvy when it comes to their money. CICA spokesperson Nicholas Cheung says that view may not be justified. “A lot of them say that they’re confident in their abilities to budget or manage their spending, but many of them don’t even have a budget or don’t keep track of their spending,” he said. Instead, realize your limits and recognize that there are many things that you don’t know, and that’ll send you on the path of learning. So the next time someone comes up to you and asks, “What’s a dividend payment?” or “How do banks calculate interest rates?” you’ll have an answer to give them.
Millennials are bad at the latter. Don’t worry, you’re not alone. A study by Visa Business Insights in August showed millennials becoming the fastest growing demographic in luxury spending. We’re snatching up those high-fashion products, travelling to far flung places and eating out on the regular, but what we’re not doing is saving our money, and that, says Tom Hamza, president of the Investor Education Fund, is a mistake. “Managing your financial situation is a lot like losing weight,” Hamza said. “It’s really easy to eat more and indulge yourself, just as it’s easy to put on more debt. But the thing is, trying to take control of the situation takes a lot of discipline.”
Do you have any idea about the state of your parents’ finances? Apparently, neither do a lot of other people. The first step to knowing how to manage your money is to know about the money models around you, and who is closer than your parents? Talk to your family and learn their mistakes and their successes – they do have useful things to teach you, really! Unfortunately, they are just not very good at getting all that knowledge they have to you. CICA’s survey found that two-thirds of parents felt they were teaching badly and wanted to be able to teach better. CICA’s Nicholas Cheung says that “[t]hose parents who are most successful at teaching their kids about financial management skills are the ones who talk to their teenagers about the family’s financial situation and how they manage their own money.” So it may be up to Generation Y to do a little bit of the legwork and actively try to understand the family’s finances.
Credit and debit cards are so ingrained in our financial interactions that sometimes we forget about ever carrying cash at all. Well, don’t, says Teacher Man, the pseudonym of a Manitoba high school teacher who writes on the popular finance blog, youngandthrifty.ca. Using cards to pay for all your purchases makes it that much easier to spend, and much easier for you to lose track of exactly how much money is coming out of your account. Cash, on the other hand, will always give you a bad wakeup call when you open up your wallet to find it empty. So if you realize that you really need to get serious, hide those cards somewhere you can’t reach them.
It can sometimes be easier to reward ourselves with a venti Starbucks drink after a long day’s work or to splurge on that new must-have item. But paying down your debt with whatever money you have is one of the only ways you can ensure a solid financial future. “We’re a generation that continues to accumulate debt without paying it down,” said Lesley Scorgie, millennial author of Rich by Thirty. “I think this generation has become a little too comfortable with carrying debt, whereas the previous generation, people were very interested in paying it down as soon as possible.” Go without the drink and choose to be debt-free instead – you’ll thank yourself in the future.
Many would-be students, says finance blogger Teacher Man, aren’t looking at what the job market is like and how high the post-graduation salaries are before choosing a program. Although it’s good to follow your dreams, he says, it is also good to inject some practicality into it. Don’t take out $100,000 in student loans when you know that the demand for jobs in your field isn’t very high, Teacher Man recommends.
Students are flocking to find work in large urban centres, but cities are having trouble finding work for all of them. “They have to be willing to move to where the jobs are,” said Teacher Man. If you hear of a job opening, even if it’s in a not so attractive area far from the conveniences of urban life, that has to be the choice you’re willing to make, he continues. Jobs won’t come running to you – but at least you can run to them. Pictured: The boom town of Fort McMurray, Alberta, where oil industry jobs are plentiful.
You’re out of school and unemployed or stuck in a job you’re overqualified for – but you still have all that money you have to pay back. Now what? One piece of advice is to not get discouraged. Says Lesley Scorgie: “People are very demotivated by debt, and understandably so. It’s that sphere of the unknown, that they won’t be able to achieve anything because they’re so buried in debt. And that’s just a myth. You can achieve success.” When you get discouraged, it is all too easy to stop doing anything towards your financial future because you feel as though mortgages, cars and being financially independent are all non-options for you. Recognize that those goals are still in your grasp and don’t get stuck in that rut.
Too many people think that saving and investing is about having a mathematical brain, or that to actively save means dedicating most of your money to your bank account. Many millennials, says John Tracy, vice-president of retail savings and investing at TD Bank, think saving will cut into the life they want to lead, and that being financially savvy means putting away hundreds of dollars a month. Not so!. A dollar a day is all it takes. These small acts, Tracy says, build up a good habit of saving, so that in you’re better prepared to handle the larger amounts of money when it eventually comes your way.
We’ve had some of the lowest interest rates in the country for a long time, points out John Tracy. High interest rates discourage consumption, while low interest rates encourage it, and we’re in an economy of such low interest rates, he says, that “the opportunity cost to consume today, in terms of paying interest, is much less.” This, however, lulls you into a false sense of security: What’ll happen when interest rates suddenly go up? They always inevitably do. Prepare for that future and pay down the money.
At the same time, all hope is not lost. Surprise! There are things that Generation Y is doing that do make them further ahead than other generations. Check out the five things that members of Gen Y are doing right with their money.
Generation Y is definitely looking to know more, says John Tracy, vice-president of retail savings and investing at TD Bank. What he has noticed is that there is a very strong interest among millennials in doing their research online before heading into the banks, and they’ll often do it all ahead of time so they know exactly what they want. Finance blogger “Teacher Man” says that he has noticed an upwards trend in traffic to his website as his content is searched for more and more often on the web. Google Trends shows that there has been a gradual increase in searches for “pay off debt” and “save for retirement” since 2005.
Millennials are, in fact, among the most conscientious shoppers out there today, said Lesley Scorgie, a millennial who is the best-selling author of Rich By Thirty. “It’s in fashion to be frugal now,” she said. Millennials, more than any other generation, say they have or would use a groupon deal in order to go on their first dates. In a U.S. survey conducted by Coupon Cabin, more than 40 per cent of adults had already used groupons on their first date. “That’s a hilarious stat. It’s now become socially acceptable for this generation to be frugal.” It’s no longer a taboo thing,” Scorgie said.
Millennials, says Teacher Man, out of all other generations, value a good work/life balance, which means that they are not too obsessed about money to forget that there is a plant that needs watering. At the same time, they aren’t shirkers. Millennials understand that they need a strong financial future. If they could just get the ball rolling, they’d go far.
Generation Y is the Internet generation, and that means that more millennials are using online banking and online money management tools than ever before. “I’m a big fan of online banking, because it saves me time, which in my mind makes me more efficient,” said Teacher Man, who is at the older end of Gen Y. “I can check my balance whenever I want, and for me that makes me more effective at managing my money.” But, he said, there is definitely a worry, as automatic payments make it easy to lose track of where your money is going. In general, however, online tools mean that it is easier than ever to keep on top of your finances and make sure you never forget to pay a bill.
Being an entrepreneur is the new best thing for millennials, says Rich by Thirty author Lesley Scorgie, especially in times when earning money the traditional way is so hard. Working your way up isn’t so easy anymore, but students who are just starting out do not have experience or opportunities coming out their back pocket. “This generation is willing to try non-traditional things. One of the gals that worked for me at one point, now she’s starting a headband company after graduating and finding it very difficult to find a job,” Scorgie said. Go out on a limb, and you might be rewarded.
John Tracy, vice-president of retail and savings at TD Bank, says that part of the problem is the changing perceptions of money and saving. In general, he said, “if you back up before 2008, people actually saw their investments and things like stocks do quite well. And these [millennial] folks have seen a lot more volatility and perceive a lot more risk. So the upside of saving just doesn’t seem as big as it did.”
Another part of the problem is a lack of education. Test results from the U.S. foundation Jump$tart showed that university students received an average D mark in a test of financial literacy, scoring about 60 per cent. A similar survey done by the British Columbia Securities Commission in 2011 also revealed that one in four post-secondary students also received D’s or worse.
According to a survey done by the Investor Education Fund (IEF), nine in 10 Canadians aged 20 to 34 look to the Internet to learn about money (asking friends and family placed a distant second). But as anybody on the Internet knows, information there should be taken with a grain of salt.
As for family, although there is a comfort factor in talking to someone close to you, surveys have shown that relatives may not be well equipped to teach everything millennials need to know, especially in light of the fact that nearly half of Ontario adults have never had a plan to save for retirement.
“I’d like to be able to say (it’s) 100 per cent of a parent’s [responsibility to teach their children],” said IEF president Tom Hamza, “but without parents’ modeling this behaviour, we have to rely on schools more often than not.”
Schools across Canada have been making slow but sure progress. Both British Columbia and Ontario having made financial literacy a mandatory part of the elementary and high school curriculum in the past decade. It’s an uphill battle, but Hamza says he realizes that there is never going to be a curriculum that includes all the intricacies of mortgages and stock markets — and that was never the aim.
“The goal is not to have a generation of investors graduating,” he said.” What we need is people who have a basic understanding of math, numeracy and awareness of what the major financial decisions are.”
Manitoba high school instructor “Teacher Man,” who writes under that pseudonym on the finance blog youngandthrifty.ca, explains that the problem with financial education is that the material is being taught by people who are not trained to teach it.
“Financial literacy is often grafted onto other courses, like consumer mathematics or business,” he said. Because many business courses and upper-level math courses are optional, the bottom line, he says, is that many students will not be exposed to what little there is being taught.
Even now, it is clear that the expectations young people have about their future will not reflect reality. They expect salaries or more than $100,000, despite the fact that the average salary for Canadians is just below $50,000. Young people may also be working far longer into retirement than they believe they will.
The defined benefits pension plans that were plentiful two generations ago are now becoming scarce – you need other savings or RRSPs. Teacher Man warns millennials that expecting government help for retirement is an “unrealistic expectation.”
A possible alternative, he suggests, is to take advantage of the "employer match," if you are at a company that offers it along with a defined benefits plan or a defined contribution plan. Contribute the maximum amount to the plan so that your employer can ‘match’ you in your contributions, Teacher Man recommends, because “it’s kind of the easiest money you can get.”
As for those who are not so fortunate, saving a dollar a day is nothing to scoff at, says Lesley Scorgie, millennial author of the book Rich Before Thirty. Ideally, she says, the average Gen Y would start saving for retirement at the age of 18 or whenever they get their first paycheque, she says. Luckily, the statistics show that millennials are not that far off the mark – many are starting to save in their mid-20s, which is a decade earlier than their baby boomer counterparts.
“I do see the awareness coming out,” Scorgie said.
No doubt about it, she continued, Gen Y is making strides, but there’s still a long way to go.
This story was written by Stephanie Chan, a student at Ryerson University's School of Journalism, in coordination with The Huffington Post Canada.