A survey conducted last year by Toronto-Dominion Bank indicated that millennials (people less than 34 years old) are the least likely of all Canadian demographic groups to be thinking about saving for retirement. Just over half (52%) put money aside with that goal in mind. That’s not a big surprise, given that projecting 35 to 40 years into the future can be difficult for anyone.
Yet, saving for retirement may be especially important for millennials. Unlike their parents, says Shelley Smith, a financial planner with TD Wealth Financial Planning in Toronto, millennials may face enormous student debt. Their employment opportunities also tend to be more limited, while the price of housing, both by rental and ownership, only seems to keep climbing.
However, millennials do have one huge advantage over other client groups: time. Thanks to the power of compounding, starting a savings program early still is the surest way to build wealth over time, even on a relatively modest income. Getting millennials to get the process started may be the hardest part of the process. “We have to be brutally honest about the future they face,” says Smith.
That’s why, when Smith sits down with her millennial clients, she often will bring up exams. Specifically, she refers to that sinking feeling that comes with realizing that preparation is lacking. “You would never go to write one of your university exams without studying,” she notes. “People have nightmares about it, wishing they had a few more days to study.” Smith uses that example with millennials to make her point: “Don’t you wish that you had started saving now rather than 10 years from now, before you have a big mortgage, two kids, a dog and a spouse?”
Lindsey Kilgour-Whitehead, a financial consultant with Investors Group Inc. in Sudbury, Ont., faces different challenges with her younger clients. Many already are painfully aware of the realities that accompany unanticipated financial need: they retain vivid memories of the financial strain that afflicted many families in Sudbury during the year-long strike at Vale Canada Ltd. (a.k.a. Inco) in 2009-10. “There were a lot of people selling things and [people were in] a lot of trouble,” she recalls. “[The strike] affected everybody.”
That’s one reason that most of Kilgour-Whitehead’s millennial clients, anxious to avoid the mistakes of their older siblings, parents and neighbours, stash as much as they can into a TFSA each month. The flexibility offered by this savings tool is what appeals to this generation because while a TFSA can indeed be used for retirement, the money is accessible if needed for other financial goals.
A TFSA also can make more sense for clients in lower income brackets, which do not generate the kind of healthy refund that often goes with contributions to an RRSP.
“When I talk to millennials about investing and saving, I always start with the TFSA,” says Samuel Waxman, a millennial who is managing partner and financial advisor with Millennial Financial Group in Toronto. Waxman encourages his clients to start small.
“We all spend $50 a month on way more useless stuff [than our future financial health],” he says. “You put a little bit away each month and you don’t even notice it. But, with the power of compound interest, 40 years from now, you’ll be thankful that you did so.” Waxman agrees that the flexibility of TFSAs makes them ideal for younger clients: “[We] enjoy being able to do things how we want to do them, when we want to do them.”
Traditional approaches, such as preparing charts and graphs that indicate the power of compound interest, don’t carry much weight with his clients, Waxman says. “I prefer to talk it out with real-life stories.” Millennial clients have likely already researched the mathematical impact of saving over the long term, he adds, before they meet with him. He’s more interested in sharing knowledge about insurance for their needs, such as critical illness plans that create forced savings for clients.
Kilgour-Whitehead, on the other hand, uses graphs and charts with her millennial clients. The charts that are the most effective, she says, are those that indicate net worth in the future by using today’s buying power vs nominal future dollars. She tells her clients: “Imagine you wake up tomorrow, you’re 65 years old, you open your bank statement and this is what you see.”
The resulting figures resonate with clients, she adds. Overshooting with projections that are too ambitious – and coming up with a final number that seems otherworldly – just makes millennials dubious, she adds: “This generation is very skeptical and they have information at their fingertips, sometimes right in your office.” They also tend to prefer more modest projections (4% growth) compared with older boomer clients (6% or 7%), she adds.
Smith says that the goal with millennial clients isn’t to scare them into saving for retirement; the goal is to help them create a consistent and structured approach to saving, whatever their goals. As she notes: “The earlier you start, the easier it gets.”
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