How do you save for the future when you can’t afford the present?
The personal finances of young people are once again diverging from the rest of the population.
It happened 15 years ago after the global finance crisis, and it’s happening now as a result of the economic disruption of the past few years. In a recent column, I wrote about how more young adults are living with their parents as a result of a weakening job market and high living costs, including rent. To get some further intel on how young people are doing in today’s economy, I consulted my wife’s cousin.
Wayne Smith is a professor with the Ted Rogers School of Hospitality and Tourism Management at Toronto Metropolitan University, and he’s always up for a discussion of the financial challenges facing young adults. I asked him what his students are thinking about and he decided to consult a dozen of them. Here’s his list:
- Lack of entry-level positions that pay anywhere near the cost of living: Linked to that are challenges with savings related to retirement, especially since pensions are close to non-existent, and having an emergency fund for a layoff/cut in hours. How does one save for the future when you can’t afford the present?
- Housing and commuting time: Many here commute 90-plus minutes to school, but even more commute 90-plus minutes for part-time work.
- The proliferation of contract work with no employment security beyond six months or a year: Makes it challenging to sign leases and establish a home when moving to another city yearly. This also makes job-hopping prevalent, as young people constantly have to be on the job market.
- The trend of working from home (especially on a contract): Leads to a need for more mentorship and networking opportunities. It also makes job performance more challenging, especially at the entry-level, when you need help accessing experienced colleagues and mentors.
Prof. Smith said there was some excitement among the students about the idea of an “opportunity economy,” which is the phrase Kamala Harris is using to brand her affordability-focused policies in the U.S. presidential election campaign. “Canadian politicians better be paying attention,” Mr. Smith said by e-mail. “If a party wants this generation’s vote, they better be talking about affordability, employment security (automation combined with corporate greed has them petrified about the future of Canada) and supporting education.”
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list
Permanently high house prices
An essay on how Canada’s economy has become tied to expensive housing: “It has become a feature of who we are.” Last week’s mortgage changes are cited as an example of how the government wants to avoid a housing market correction, helpful as one might be for young buyers priced out of the market.
How to save for your property tax bill and other big expenses
Good tips here on managing one of the toughest aspects of household budgeting, which is to account for large, irregular expenses like property taxes and insurance premiums. What I do is divide big annual costs by 26 and deposit that amount in a savings account each payday.
A three-way grocery price smackdown
No Frills vs. Walmart Vs. Food Basics. A clear winner emerges, but there’s a bottom-line lesson here in that prices vary a lot between grocery chains. Now for a Loblaw-Metro cost comparison in the Ontario market.
A cure for ETF investing paralysis
There are 1,400+ exchange-traded funds listed on the Toronto Stock Exchange. If you’re struggling to choose a few for your portfolio, this blog post is a good place to start.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask or Tell Rob
Reader comments: “Hi Rob. Having spent a career managing fixed income and then foreign exchange portfolios at large pension funds, and being the beneficiary of a nice defined benefit pension myself, I nonetheless have a large gold holding. Mostly in gold ETFs, but some physical. As I approached retirement, and watching what both the Canadian and U.S. government were doing, I determined that the risk to my pleasant retirement lay with inflation. As a result, I started buying gold exposure more than 10 years ago. While I was early, the hedge has worked pretty nicely since I retired at the end of 2020. As I tell my kids, I hope that I lose money on my gold hedge because that will probably mean the world is heading toward a better place.”
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
A snapshot of savings and GIC deposits at major banks
In the social sphere
Social Media: A Reddit discussion on how best to convert US$35,000 to Canadian dollars
Watch: Basic but important information on making sure you get a fair rate of interest on your savings.
Money-Free Zone: The soul artist Lady Blackbird has a new album out, and it starts with the soaring Let Not Your Heart Be Troubled. Love the chorus, which has faint echoes of Let the Sunshine In, by the Fifth Dimension. If you haven’t listened to Aquarius/Let The Sunshine In lately, do yourself a favour and click the link.