A couple of months ago, an old family friend approached Jessica Granofsky, a 22-year-old public relations rep, with an offer of free financial advice. It wasn’t an unusual suggestion: The friend was a financial advisor and Ms. Granofsky, a recent university graduate who was living with her parents in Richmond Hill, Ont., was saddled with thousands of dollars of student debt.
When they sat down to talk, though, she quickly found out that his advice wasn’t as relevant as she had hoped it would be. His suggestion? To tackle her finances now, because she would have to start thinking about kids and a house soon.
“I was like, ‘No, I’m not.’ Like, that’s not on my radar. I’m not thinking about that right now,” sherecalls.
It’s perhaps not surprising that she saw the advisor’s comment – however well intentioned – as being out of touch. Today’s millennials are dealing with financial challenges previous generations never had to worry about, including ballooning student debt, skyrocketing housing prices and the sense that they’ll never enjoy the same lifestyle as their parents.
Couple that with the fact that they’re getting jobs and marrying later in life – women are getting hitched at 27 years of age, on average, compared to 21 in 1965 and men at 29 compared to 23 – and the life stages advisors have traditionally planned for, no longer apply.
“Gone are the days when people finish high school, marry their sweethearts, get a decent-paying job, and buy a house and have a child,” says Aaron Keogh, a financial advisor with Greendoor Financial Inc., in Windsor, Ont. “Those situations are typically over.”
What’s more, if advisors want to give useful advice to millennial and Gen Y clients, they need to remember that attitudes around debt, saving and spending have changed, too, says Meghan Crawford, a 27-year-old registered practical nurse from Guelph, Ont. The temptation to buy, she says, is everywhere.
“It’s so much easier to spend. Everything pops up on your Instagram and you’re like, ‘That’s so cute,’” she says. “You get almost trigger-happy with your phone. You’re thinking, ‘Oh, yeah. I need this.’”
Knowledge is power
Still, four out of five millennials have at least some savings, even if they’re meagre or built through workplace programs where money is taken off a paycheque and put into an account says Rick Headrick, President of Sun Life Global Investments. However, “only one in two are investing,” he says, likely because of early memories of the dot-com crash and the more recent financial crisis.
To alleviate these fears, Mr. Keogh says advisors need to spend more time with younger clients, teaching them basic financial literacy right from the outset. He often sits down with his clients’ teen or adult children to talk to them about things like, how compounding interest rates work, diversification and dollar-cost averaging.
With people starting work later – many millennials are in university longer than their parents were – advisors should focus on getting younger clients to invest at least something and then increase it as they start earning more.
“Consider investing small amounts at a time to start, especially if market volatility makes you wary,” Mr. Headrick says.
Clients who invest even $25 a month in a registered retirement savings plan (RRSP), that money can be used tohelp pay for a mortgage later thanks to the RRSP Home Buyers’ Plan.
For millennials, who will be living longer and working longer, the key isn’t tying financial planning to life stages – it’s ensuring they start investing early. At some point they may want to buy a house, get married and have kids. In fact, putting off these expenses means younger Canadians have got more time to save, says Mr. Keogh. With that longer time horizon comes the ability to take on more risk (i.e., stocks instead of low-paying bonds) and potentially reap more rewards.
Creating new goals
When it comes to those life stages, advisors should understand that the way people get married or find real estate is different now. For instance, many people are happy to rent these days, which means home ownership may not be a financial planning goal like it once was.
Some millennials are also coming at home ownership in more creative ways, such as buying a house in a less expensive city, renting it out on Airbnb and then selling it when the local real estate market picks up later. They can then use that money to finance their own abode, says Mr. Keogh.
Ms. Granofsky isn’t anywhere near ready to buy real estate yet. In fact, she and her friends half joke that they’ll likely all have roommates forever. What they really need is good, relevant advice to help them cut debt and make enough money to deal with any life stage when it arrives.
“A financial advisor needs to make sure they’re able to actually help us with our current needs, rather than what it might have been 20 years ago,” she says.
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