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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROB: Were you ready for the COVID-19 crisis? There is a way to crisis-proof your finances. We’re talking about that today. Welcome to Stress Test, the Globe and Mail podcast where we look at how the rules of personal finance have changed in the pandemic for Gen Xers and millennials. I’m Rob Carrick personal finance columnist at the Globe and Mail.

ROMA: And I’m Roma Luciw, personal finance editor at the Globe. Rob, how’s your pandemic going?

ROB: You know, I'm feeling a little bit better about things. There's some optimism around things opening but there's still so much uncertainty around people's finances, especially for young people.

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ROMA: One of the things that’s not clear is whether or not university and college students will be physically attending on campus next year. Rob you and I’ve been visiting college and university campuses for around seven years now, talking with students about how to manage their money. We basically stand in front of them, we have conversations we say to them, this is your chance to get unbiased answers to any money questions you have. We’re not your parents, we’re not your teachers, we’re not trying to sell you anything a product or service, we’ve got decades of experience between us in this field, so ask us anything you want when it comes to money. What are some of the things that you think that they’ve asked us that have been surprising?

ROB: We see two levels of students. One, everything's together -- in fact, they're so ahead of the curve that they're investing and they want tips on the best stocks to buy and the best way to invest. But we find most people are sort of at the basic starting point of personal finance, they need to get their baking in order, make sure they're not paying any fees. They're getting into credit cards, they're asking questions like, which is the best credit card for earning points?

ROMA: So one of the things that I think becomes evident during these sessions is that they haven’t given a lot of thought to how they’ve structured their banking. I will admit that I have a bank account at the credit union that is at the base of my parents’ street. It’s obviously not my only account, but that is an account that I still have. Honest question, Rob, do you have an account at that same bank from your childhood?

ROB: Damn straight! As a personal finance columnist, I tend to collect bank accounts. And I tend to keep them. So I've got a pretty big collection. But yes, I do still have that core account at my original bank. And I noticed among the students that there is a surprising tendency to bank that way, rather than embrace all the great apps and online banks there are out there. It sometimes surprises me how reluctant they are to make a break from what their parents did or what was close by and try something new and better.

ROMA: So one of the worst things you can do is open that first bank account because your parents have banked there or because it's close to you, and then just leave any money that you have sitting in a chequing account. What kind of conversations do we have then, to move them away from that?

ROB:I am surprised sometimes at how people still have not grasped the greatness of the high interest savings account. These are no-fee accounts money can be moved in and out electronically on your phone, on your desktop computer, however you want to bank, and the rates are just so good and the fees are so minimal. These are must-have products for everybody, yet we know from talking to students that a lot of them aren’t doing this. They’re not shuttling money back and forth between their chequing in their savings like they should be. The savings is the place for money you don’t need right now, money you’re building up for the future. And the chequing is only for paying bills and for having your paycheck deposited.

ROMA:The most important thing is not to be passive when it comes to your banking, to be mindful to look at things like fees, how many transactions, transfers you do and think about crisis proofing your finances because at a time where unemployment is rampant, and people are really struggling financially, not having to worry about your money is really going to prove to be a benefit for you. It's one less thing for you to worry about. So let's dig into this topic.

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ROB: In every episode of Stress Test. We talk to real people and experts to see how the basic rules of personal finance have been stress-tested by COVID-19. Today, we're talking about how to crisis-proof your finances. That's up next.

COMMERCIAL: This podcast is brought to you by CPP Investments. take comfort knowing the Canada Pension Plan Fund will be there for you. We invest to help ensure the CPP Fund remains resilient over the long term, sustainable and secure for millions of Canadians. Learn more at CPPinvestments.com.

ROB: Now let's meet someone whose service industry job was wiped out by COVID.

AARON: My name is Aaron. I'm 36 years old and I just moved to Pemberton BC, out of Whistler after 15 years.

ROB: Whistler is a ski resort town. Aaron was a bartender for many years, and he loved the lifestyle there.

AARON: Our motto is party in April, sleep in May. And I mean, I'm 36 I can't do that anymore, but yeah, I did I put my hours in, that's for sure.

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ROB: What's the income like when you're a bartender?

AARON: It depends on your place that you're working If you're a service bartender, you're making a lot of cocktails and whatnot for the servers to take to tables. It's lucrative, shall we say, I mean, let's say I make two grand in wages, I could probably make that again, and then some, tip-wise.

ROB: Aaron says he made about $40,000. Last year, he keeps a meticulous record of his income, which is good because the income constantly varies. And it's a cash culture.

AARON: There’s a saying, you know, it’s not how much money you made that night, it’s how much money you woke up with the next day.

ROB: What was it like in Whistler in the early days of COVID?

AARON: It felt like a dam breaking. It went from, we heard about it, okay, this is something to worry about. They went from cutting hours at my one job, because they were shutting down tables so that we could physically distance and everything with families. And that was Friday, and then by Wednesday, we had closed down, shut down. No one coming into work. And yeah, my last shift was actually St. Patrick's Day. So yeah, I haven't worked since March 17. It was a landslide.

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ROB: Did Aaron have an emergency fund?

AARON: I had savings but I wouldn't say they were, I mean, I wasn't in five figures or anything. I had a tax-free savings account. I've got an RRSP and various little things, I've got about $14,000- $15,000 all in if I was to liquidate, which is not enough to buy a house.

ROB: Buying a place is the reason why Aaron moved to Pemberton. He just bought a condo. But if he didn't have a ton of money saved, how does Aaron afford his new place?

AARON: Luckily, I have a mother who loves me. And she is fortunate that she's working. She works from home. She's basically helping me buy this place like she's covering the mortgage until this all figures itself out. But that's if people keep paying her you know, if people aren't going to work to do their work, she doesn't have any work to do for herself and it's real fraught.

ROB: To purchase the condo, Aaron put in $35,000 on a down payment that was over $100,000. He put in a good chunk. But he also knows…

AARON: I literally could not do without my mom.

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ROB: She sounds like a loving parent who helped her kid out with some real estate as parents across the nation have been doing for years. But how does Aaron feel about how he’s going to afford it in the long run?

AARON: It's honestly, I allow myself little three second panic attacks. Just like, okay, let it like, let it wash over you for like four seconds and just let it, let it suck. And then go, Okay. But then my manager like has been like, This will not last forever. It can't last forever. To get a little personal, a few years ago, my little sister died. And so when we got to the point where we may not be able to get this house through lending and whatever, my mom called, it was the night before and basically she said, Listen, it's just money. We'll take it on the chin, but it's only money. And that was a real turnaround moment for me. Like, of course it would be awful to lose this place. But it's only money. People have bounced back from worse. Yeah, that's kind of my headspace.

ROB: Aaron and his family have gone through the major trauma of losing a family member. And it shapes his outlook right now while there's so much uncertainty with a global pandemic.

AARON: Unfortunately, nobody has answers. Everybody needs answers and nobody has them.

ROB:When it comes to money, without his income and with a brand new place, how is Aaron surviving?

AARON: I’ve got the CERB which has been, I’ve been using that for groceries and, you know, bottle of whiskey here and there. I’ve definitely, I haven’t touched my savings. I haven’t touched my TFSA and my RRSP but I had about two grand in my account before the CERB anyway, so I’ve got a nice little cushion that’ll keep me going. If I didn’t have to worry about mortgage, I’d be fine. But, that’s kind of the...you just don’t know. I feel like a lot of my stuff is like too little too late?

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ROB: You know, it’s never too late. And it’s never too little. Getting help from family is one of the most normal things going on right now for millennials. And you know what? I think it’s right. If there’s a need among the millennials, and there’s a means among the parents, let’s connect the two, it makes good sense. But I think Aaron is thinking he’d like to be a bit more independent of that. And I think he needs to build up some savings discipline, start with a little bit, move on, get in the habit of taking some of that cash and squaring it away somewhere safe in a savings account, build up those resources to prepare for the next crisis. I feel it was really gutsy of Aaron to share that story. There’s a lot of personal details in there. He’s had a lot of challenges. And I think it couldn’t have been easy to share that with us.

ROMA: That said, I feel like there was a lot of people out there that are going through very similar things, that a lot of people will be able to relate to him. And so it's important that we talk about these kinds of situations. It's important that we share our money journey so that we all know that we're not in it alone.

ROB: You know. And I think it's worth saying that not everybody is a shining success. Although when we talk to others, we always get the impression that they are. There's always more to the story underneath.

ROMA: At a certain point in time, it makes a lot of sense for people to get custom, tailored financial advice. A lot of the people that we're speaking to here fee-only financial planners. Rob, why don't you tell us about how a fee-only financial planner works?

ROB: It's really simple. It means I pay someone a flat or an hourly fee for financial planning advice. You find an accredited financial planner, a CFP, a certified financial planner, an RFP, a registered financial planner. You pay an hourly fee, or a pre-determined fee for a particular type of consultation. And you get the financial plan. You get the commentary from the planner and there are no financial products to buy. It is a cash-for-expertise transaction. And people really like the idea. The fee-for-service planning has, in the past five or so years, really started to get some traction and I'd love to see it do better. I think more people could really benefit from this type of input from a pro.

ROMA: What's the other kind of advice that's out there?

ROB: It's where advisors and financial planners are compensated through fees and commissions associated with the sale of investments. They say, let's do a plan, I'll build a portfolio for you. I'll tell you how much to put in it. And I'll get paid through fees associated with the mutual funds I'm buying for you. And so the compensation is locked into and tied into the investment side of things. And it is possible just to buy that advice.

ROMA: So now you know what the difference is and why Rob really likes the idea of paying a flat or hourly fee for financial planning. And in this business, they're also called fee-for-service. Anyway, guess what? We've got a financial expert for you with her advice on crisis-proofing your finances. That's up next.

COMMERCIAL: This podcast is brought to you by CPP Investments. At CPP Investments, we never lose sight of the long term. We invest the Canada Pension Plan Fund to help provide financial security for generations of Canadians. We diversify the CPP Fund across geographies and asset classes to access the best investment opportunities and generate sustainable long-term returns. The fund is now more than $400 billion. To learn more about our investment performance for Canadians visit CPPInvestments.com.


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Julia Chung

ROMA: Crisis-proofing your financial situation is about having a strategy, a long-term plan that can help you in an emergency. In May, two months into COVID, I called up Julia Chung. She’s a financial advisor with Spring Financial Planning in Vancouver.

ROMA: One of the things that stands out to me when I'm hearing from our young readers is that they are not clear on how to set up their banking. What kind of accounts should people have?

JULIA: I like to see people start off with a couple of key accounts, with real purpose for those accounts. So what what happens a lot of times, we end up with just a chequing account and a savings account, because that’s, you know, because that’s kind of the first way that we start up with banking. And we connect our chequing account to our ATM card, and we almost never use our savings account. That’s kind of typical, it’s what people end up doing. But what I would like to see is real mindful thought about how we’re going to spend. Usually from a very basic level, what I like to set up is a bills account. So you have an automatic fixed amount of money that goes into your bills account, you know that every month you pay roughly this much money in fixed expenses, just have all the money go in there. And then have another account that is for spending, things that you’re going to use your ATM card like gas and groceries and going out and buying clothes or those kinds of things. As a very key, bottom-level, starting point, I like to see people have at least those two accounts because that way you know, your bills are going to get paid. And you don’t have to constantly do mental math when you’re grocery shopping. It can get more complicated from there. But that’s kind of the first two that I’d like to see.

ROMA: And so which one of those are they using a chequing versus a savings for?

JULIA: Both of those would generally be for chequing, because they're constantly using transactions. And when you think about how chequing and savings accounts are set up from a fee perspective, usually chequing accounts will have, like, unlimited transactions, if you've got one of those really great chequing accounts, or you'll have fixed number of transactions. And then there's a fee after that. Savings accounts will basically assume that you have almost no transactions. So when you're thinking about how you're using those accounts, you want to think about like, how many transactions am I gonna have? So when it comes to the bill payment account, you're probably gonna have four or five transactions every month. And then with the sort of spending or ATM account, you're probably gonna have a lot

ROMA: So this is sounding a little like that old-school envelope system that people used to recommend for kids. Is it a good idea to set up accounts potentially for various goals that you have?

JULIA: That's exactly it. It's taking the envelope system and making it digital and putting it into your bank. Right? And yes, I'd absolutely like I say, it gets more complicated from there. Those are your two primary operational accounts. These are the things you're using every single month, probably almost every single day. And then from there, you have to think about what other kinds of things are going to come up. So you might have bills that are paid annually. Maybe you have property taxes, or maybe you have vehicle insurance, these things that are paid annually. And if you contribute to that in a savings account every month, then you always have the money when it's ready. And you might have other kinds of goals like you want to take vacations, or you need to, you want to buy clothes or you want to save up for other sort of short-term things. You can open up separate savings accounts for those. Very often online banking will let you name them as well, which I find really, really useful.

ROMA: So it sounds like it's confusing, but it's actually a smart way to organize yourself to make it easier.

JULIA: Yeah, the idea is to get away from tracking your spending, which is painful and everybody hates it, like literally everybody. What this system does for you is makes it almost mindless. The savings happen automatically if you set up automatic transfers, and the money’s just there when you need it.

ROMA: Okay, so you’ve taken some basic steps. You’ve set up your banking so that you have bits of money going into specific envelopes. You have all that arranged, what’s the next step that you need to take to set up your finances?

JULIA: Well, the next step is you want to review. So what a lot of people say to me is, well, I don't spend the same amount of money every month and sometimes my bills are different. Yes, that happens for everybody. That's just the reality. Money ebbs and flows. So you want to make sure that you set up at least one day a month where you're just reviewing. Just once, just once a month. It's not a lot and give yourself a little reward afterwards. I have a lot of people who are like, get a six-pack or grab a bottle of wine, and sit it in front of yourself. And after you've done your money review, that's the reward that you get. Do that once a month. Make the little tweaks and changes. Recognize when you just need to change those numbers. And then from there, you should be able to let it ride. And then what you'll see is whether or not you actually have surpluses, or deficits, and hopefully if you have surpluses, that's when you start doing the kind of next-level saving towards bigger goals, whether that's, you know, starting with emergency savings, or moving on to things like you know, I want to build the down payment for a house or I want to say for retirement, or I want to say for children's post-secondary, whatever those things are, and now you actually know what the surplus number is you can work with.

ROMA: So where would you recommend that people start saving for a medium-term goal like trying to buy a home of some kind?

JULIA: High-interest savings accounts.

ROMA: What are some good high-interest savings accounts?

JULIA: The ones that cost you no money and pay you as much as possible. So you know, have a look around, understand how they work. Understand that whatever financial institution you're working with, whether it's a bank or credit union, they're going to offer the one that makes the most sense to them. Or they're going to offer the one that their bosses have told them to flog that day. So just remember, what do I need out of this? Maybe I need something that's going to be available to me, no matter what. You know, I often say with like, an emergency savings account when you need that midnight, in Saskatchewan, when your car's broken down in the middle of winter, you need that to be accessible and easy, no matter what. But you might need something different for you know, a short-term savings where it's like, I'm not going to use this for five months, then you might start looking at different accounts that have lock-in components to it. And that would usually get you a higher interest rate.

ROMA: So you mentioned a TFSA in a nutshell, can you run through what a tax-free savings account is and what are Registered Retirement Savings Plan is, what the differences are and how you should view those?

JULIA: So a tax free savings account -- actually, I'll start with the RRSP, the Registered Retirement Savings Plan because most people are familiar with this. So ultimately with an RRSP, you open it up, you put the money in, and that same dollar amount, so say you put $100 into your RRSP, that $100 is deducted from your taxable income for the year. You're going to pay less tax overall, on your income tax return that particular year because you put money in the RRSP. That's an incentive for you to save for your own retirement. While your hundred dollars is sitting in its RRSP, you've invested it, it's, you know, making money every single year. When you eventually do withdraw from your RRSP you have to pay tax on that withdrawal. A TFSA works similarly but different. So with the TFSA you put the money in, you don't get any tax deduction on your income tax return. The money sits in the TFSA, you've got your hundred dollars, it's growing over time, you're not paying tax on that growth. And then you take the money out, and you also don't pay tax on that. And so this is a really, really great planning tool. And the reason why I think it's great for long-term is when you get out to retirement, there's all sorts of income streams coming in, they get kind of complicated from various sources, and most of them are taxable. So retired people have to think about, How do I organize all this? And to be able to top up your taxable income with tax free income is really, really helpful.

ROMA: Everyone is going to have a long-term, long-standing relationship with their bank. How should you approach that relationship?

JULIA: You should definitely approach that relationship like you would any other retail provider of products and services. The bank is just that, they're a retail business. They are providing services and they are getting paid to do it. And I think a lot of times in Canada, because we have such good relationships with our banks, and we really do, people tend to think that the bank is almost like a government, but it's not. It's a for-profit business. And their job is to make money. Treat it like you would any other transaction. You know, if you go and you get insurance for your car, you're going to be asking questions about it. Does this cover me for this kind of liability? I'm going to be using my car this way. Does that make the most sense? Just understand that what you are buying is a product.

ROMA: How do you feel about budgeting apps?

JULIA: I don't love them because people don't like them. Most people don't like tracking things. And most people feel a lot of shame around those things. So the envelope system works. It's simple. It's free, as compared to a lot of those budgeting apps, and it gives you a great deal of control and takes you away from shame.

ROMA: When people walk through your door. How much of your job is to shift their emotional mindset when it comes to money?

JULIA: A lot, a lot. What people don't realize is that money is emotional. We have so much tied up in our perceptions of money, and what it means to us. Money is something that we can control and own and use as a tool. But however we were raised as kids, it really always comes back to that, you know, how we were raised as kids, what kinds of experiences that we had with our own money, how our parents felt about money, all of those things impact how we look at money and how we feel about ourselves because of money. So there's a really, really huge component in working past any kind of blockades that we have in order to achieve success. We all need to just accept money's emotional, we've got to solve that bit first, and then we'll be able to work towards whatever success looks like for us.

ROMA: Let's talk a bit about credit cards. Almost everyone has a credit card. It seems to be one of the ways in which people first run into trouble. How would you advise someone to approach a credit card?

JULIA: In our environment, we kind of can't get away from credit cards. It would be great to be able to get away from credit cards because they're massively expensive. And I think a lot of people don't realize how expensive they are. Not only if you carry a balance, the interest rate is ridiculous. Like if I could get 20% on a GIC somewhere, I'd be thrilled. That's what they are getting on your money. It's outstanding. The best way to use your credit card is simply for transactional purchases that you really can't use your ATM card for. You know, you can't use cash for this. You can't use your debit card for that, you're buying stuff online, a credit card is necessary. I get that, that makes perfect sense. But pay it off immediately. Do not carry a balance. It is not free money. It feels like free money. It's one of the things that drives me bananas about going into universities. When my son started post-secondary school we walk in and there's these kiosks set up to try and sell, you know, brand-new university students credit cards. Like, students don't have money. That's actually a thing. It drives me nuts. Do not use it as anything other than transactions.

ROMA: Let's talk a bit about credit scores. Tell me what a credit score is.

JULIA: The credit score is really how all the lenders out there in the world tell each other about you, and whether or not you pay your bills.

ROMA: Yeah. So it's basically a grading of how good you are as a borrower. What are the repercussions of having a credit score that's less than amazing.

JULIA: People won't lend to you and not just they won't lend to you. In some cases, financial institutions won't even open a bank account for you. It limits your ability to just access the world of money.

ROMA: So in my mind, the credit score is something that I see a lot of people worrying about. There's a pretty clear cut, easy way to keep your credit score healthy and that's all you need. You don't need to have the highest mark in the class, you just need to have a healthy credit score. And so how do you do that?

JULIA: Pay your bills on time. That's the biggest thing, pay your bills on time. Don't take on credit that is more than you can actually handle. So that's why, you know, we want to make sure that that credit limit on your lines of credit and your loans and your credit cards are not ridiculously high. Read your contracts. If you're signing up for any kind of membership or subscription with anybody, and almost every retailer in the world really likes to have subscription because it's, you know, guaranteed income flow for them. Read your contracts, understand your rights to cancel these things before you get into it. Because a lot of times people get really frustrated with the lack of service or whatever that they're getting from some sort of membership they've gotten involved with, and they go to try to cancel it, and they can't. And then they say, Oh, well, I'm just not going to pay these guys. Well guess what? They are absolutely going to be telling the credit bureau about that.

ROMA: What is the biggest misconception you tend to see in terms of people's finances when they're in their sort of mid 20s? Around the age your son is, or even into their 30s? What's sort of the biggest mistake that people make?

JULIA: I think the biggest one that I often find is people have this idea that somehow, when you graduate high school, and then you legally become an adult, that this knowledge just falls on you. All of a sudden, you have become a grown up, and you’ve got endless knowledge and you should know how to manage your money. And “should” is one of those words I’d like to delete from the English language. There’s no reason why you should know how to manage your money. If you’re lucky, maybe you grew up in a household where your parents taught it to you, maybe you had somebody from Junior Achievement, come into school and talk to you about it, or you had a planning class. And that would be amazing. But there’s no expectation that you should know these things. So it’s a really great thing to just remember that this knowledge isn’t innate, and spend some time educating yourself, learning from people and I know that can be difficult as well. There’s so many different resources out there and some of them are not brought to you by the best people. So look for people who don’t have skin in the game who aren’t trying to sell you something and try to find your education in those places.

ROMA: Is there anything that I haven't asked you about that you think is worth noting here.

JULIA: Remember that if you are a person who works in the gig economy, in the service industry, if you have multiple jobs, if you’re taking taxable payments from the government during the times of the pandemic, all of those things are taxable. If you have not set money aside for it, you’re going to have a massive surprise that you will not enjoy come tax time. Have a savings account called “taxes” and put some money in it.

ROMA: Now I'm going to give you the three things you should take away from this episode.

One: Your bank is not your friend. Don't assume that what they are offering you is the best banking for your needs. Be proactive in your dealings with them. Ask for better deals and if you don't find them at your bank, shop around.

Two: Everyone should have a bank chequing account and at least one, if not more, high-interest savings accounts. High-interest savings accounts generally don't have fees. Check out the online and alternative banks they have some of the best saving rates around.

Three: Credit card debt is dangerous. Don't wait until the end of the month to pay off what you bought on a card, do it immediately. Your credit card is a key tool for building a credit score, which you'll need to buy a car or a house or rent an apartment. Handle it with care.

ROB: Thank you for listening to Stress Test. This show was produced by Hannah Sung. Editing and mixing by TK Matunda. Our executive producer is Kiran Rana.

ROMA: Thank you to Aaron in Pemberton, BC, and Julia Chung of Spring Financial Planning. If you like what you heard, let your friends know. Leave us a rating and review at Apple Podcasts.

ROB: And if you know someone who wants to get their financial house in order, send them this show. Tell them to subscribe to Stress Test at Apple Podcasts, Google Play, Spotify or their favorite podcast app.

ROMA: We love hearing from our listeners. So we want to know if you have any questions for us. Send us a voice memo and we might feature you in an upcoming show. Future episodes include what it costs to live downtown, the cost of having kids or the savings you can get by moving back in with your parents. Ask questions for any and all of the above. This is how you can do it. Just record your voice on your phone in the voice recording app and ask your question. Email the voice memo to me Roma Luciw, rluciw@globeandmail.com. Thanks so much for listening.

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