Having a written financial plan, creating an emergency account for expenses, and putting money into TFSAs and RRSPs are some ways young adults can help secure their financial future.freemixer\/iStock<\/p>\n
Finding a route to financial independence is difficult at the best of times, but the COVID-19 pandemic tore up the map for the youngest adults.<\/p>\n
A recent Canadian Bankers Association survey found more than half (53 per cent) of Generation Z survey participants, those aged 18-25, said COVID-19 had upended their financial security.<\/p>\n
Yet, almost all of them (98 per cent) said theyre making plans to strengthen their financial resilience. Financial advisors and planners can help Gen Z on this journey.<\/p>\n
A written financial plan is a good place to start, some advisors say, and they stress that clear goals and emergency funds are important for clients in the gig economy or with uncertain incomes.<\/p>\n
Determining what all the necessary expenses are including rent, internet, cellphone, gas and groceries is the first step, says Steve Bridge, certified financial planner and money coach at advice-only firm Money Coaches Canada Inc. in North Vancouver, B.C.<\/p>\n
Being able to set aside two or three months worth [of funds for those expenses] is huge because it relieves a lot of the stress of, I dont have work this month, Mr. Bridge says.<\/p>\n
He says he advises young clients to set up a savings account labelled holding account, which is to be used only for holding money for slower months.<\/p>\n
Asif Khan, wealth advisor and financial planner at BMO Nesbitt Burns Inc. in Mississauga, says Gen Z clients should also start building investment buckets for a down payment on a house and for retirement.<\/p>\n
Putting money into a tax-free savings account (TFSA) and registered retirement savings plan (RRSP) at this young age will be explosive for them in retirement, he says.<\/p>\n
The TSFA and RRSP, for the long term for Gen Z, should be 100 per cent [in] equity compounding dividend-paying investments, Mr. Khan says.<\/p>\n
Brian Cabral, director, wealth planning group, at CIBC Private Wealth Management in Toronto, says the decision on whether to use a strategy based on a TSFA or an RRSP depends on a clients tax bracket.<\/p>\n
Although it makes sense to allow contribution room to grow in an RRSP until its needed in high-income years for tax savings, clients cant go wrong making contributions to either plan, he says.<\/p>\n
Furthermore, there are government programs such as the First-Time Home Buyer Incentive and Lifelong Learning Plan that allow young clients to tap into their RRSP savings to buy a first home or go back to school for more education, Mr. Cabral says.<\/p>\n
While home ownership seems a long way off for members of this generation, having it as a goal can still be realistic even in the current inflated market.<\/p>\n
Mr. Khan says although homes are priced higher, younger clients are experiencing much lower interest rates than their parents and grandparents generations.<\/p>\n
Yet, Mr. Bridge says that the basics need to be in place first.<\/p>\n
If owning a home is a really strong goal and the numbers can work, yes absolutely, save up for a home, he says. But, adding that to everything else that is going on at that age finding a job, getting a regular income, potentially paying back student loans, maybe buying a car saving for a home on top of that is a big ask.<\/p>\n
A particular stressor for Gen Z clients can be debt, particularly student loans. Mr. Bridge says advisors should help young clients pay down those loans sustainably.<\/p>\n
This comes down to cash flow how much can a young person put toward [paying off these loans] every month and still meet their other goals?<\/p>\n
Paying down a student loan too quickly can result in building a higher interest debt if something like a car repair comes up, Mr. Bridge says.<\/p>\n
Gen Z clients being comfortable operating digitally also extends to their attitude to investments.<\/p>\n
Were finding a lot of younger folks have decided to go with the do-it-yourself investment strategy, says Shawn Khimji, vice-president, wealth management, at Alterna Savings and Credit Union Ltd. in Toronto.<\/p>\n
That can be challenging. . If youre not careful in your approach, especially in a market thats changing or on the cusp of changing with high inflation or interest rates, your asset allocation may not be appropriate for the future state of the economy.<\/p>\n
There are web forums that recommend investments based on an ideology, Mr. Khimji says, adding that he tells clients to really know what theyre investing in.<\/p>\n
The rise of bitcoin BTX21 and other cryptocurrencies also can capture Gen Zs imagination. A do-it-yourself investor might believe thats a path to easy money, Mr. Khimji says.<\/p>\n
While he says he doesnt have a problem with young clients putting some risk capital in cryptocurrencies, they shouldnt put all their eggs in one basket.<\/p>\n
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How advisors can help Gen Z plan for a financial future upended by the pandemic - The Globe and Mail<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Having a written financial plan, creating an emergency account for expenses, and putting money into TFSAs and RRSPs are some ways young adults can help secure their financial future.freemixer\/iStock Finding a route to financial independence is difficult at the best of times, but the COVID-19 pandemic tore up the map for the youngest adults. A recent Canadian Bankers Association survey found more than half (53 per cent) of Generation Z survey participants, those aged 18-25, said COVID-19 had upended their financial security. Continue reading