Recent university graduate Kylie Robertson, 23, can’t see the point of financial planning at this stage in her life.
With a five-figure student debt load, a new job, and no dependents she’s not sure what she would be planning for. “I think I’m too young for financial planning because I don’t have a whole lot of finances to plan,” she explains from Edmonton.
It’s a common dilemma among young adults who leave school with a big bill and want to see that tally disappear.
“I suppose it’s more accurate to say that I’m too broke to consider financial planning,” she says. “If I were the age I am now with less of a debt burden, then it’s something I would consider. But even so, I would have no idea where to start beyond some basic RRSP contributions.”
Thinking you’re too young, or too broke, to craft a financial plan are just a few myths about financial planning, says Tamara Smith, vice-president of marketing and consumer affairs for the Financial Planning Standards Council.
The council, a not-for-profit organization which develops and enforces professional standards for financial planners, has chosen Oct. 17th to 23rd as financial planning week.
To mark the event, the FPSC has outlined five common financial planning myths:
Myth # 1: I’m too young for financial planning.
Not true, says Ms. Smith. “It’s never too early to start building a financial plan,” she says. “It’s never too early to start creating good habits,” which includes creating a budget, paying down your debt, saving for big events in your life, and balancing your wants versus your needs.
In addition, “the great thing about being young is that compound interest and time is in your favour,” she adds. “A little bit today is worth so much 10 or 20 years down the road.”
Even if you’re just starting your career and have no dependants, and even though your financial status and priorities will change throughout your life, it’s beneficial to have a financial road map of where you want to go, Ms. Smith says.
Myth # 2: Financial planning is only for the affluent.
Many people assume that financial planning is only for the wealthy. But it’s also hugely beneficial to those without much money. “If you have little savings or are not sure where your money is going – then that’s all the more reason to engage in financial planning,” Ms. Smith says.
A financial planner can help someone create a budget, take advantage of the tax breaks through RRSPs and TFSAs, figure out their financial goals, reduce their debt interest, as well as start planning early so they can have a comfortable retirement, Ms. Smith says.
“There’s lots of tools at their disposal to be able to help young people, early in their career, make some smart financial decisions,” she says. Early financial planners learn how to be better savers, she adds.
The council’s recent Value of Financial Planning study found that people who engage in financial planning, regardless of their net worth, experienced a significantly greater sense of emotional and financial well being. Almost twice as many respondents who engage in comprehensive financial planning feel they are prepared to manage through tough economic times, compared to those who do not plan.
Myth # 3: The best way to find a financial planner is through referrals.
While referrals from friends and family can be helpful, they should not be the sole basis for choosing a financial planner. Many Canadians don’t realize that the financial planning industry isn’t regulated in most provinces – in the way that doctors, lawyers, and other professions must follow certain practices set out by a governing body. Right now, anyone can call themselves a “financial planner” with no specific qualifications.
Before engaging a planner, ask the right questions, Ms. Smith says. The FPSC offers this guide: 10 Questions to Ask Your Planner.
People can also look for those with the Certified Financial Planner (CFP) designation. Those with the CFP designation must follow FPSC standards of competence and ethics.
Myth # 4: The main focus of financial planning is investing.
Many people equate financial planning to having an investment portfolio – end of story. But in reality, sound financial planning looks at the big picture of one’s life plan, and includes addressing household budgeting, tax, retirement, estate planning, investing, debt or risk management.
“Investing is only one part of the picture,” says Ms. Smith.
Myth # 5: Financial planning is all about planning for retirement.
While planning for the future and for unforeseen events is an important part of financial planning, it’s not the only focus, says Ms. Smith. “A sound, thought-out financial plan takes both the now and the future into consideration,” she says. “The idea that having a financial plan and saving means making huge sacrifices now and putting your immediate life goals on hold, is a misconception.”