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How young people can avoid a financial fail

Globe and Mail personal finance columnist Rob Carrick takes your questions

  • Thanks for joining our live chat about how young people can avoid financial failure. Rob Carrick will be joining us at noon. You can submit your questions now for moderation.
  • Hi everyone. Thanks for joining us. Before we begin, I want to make sure you've all had a chance to read an excellent story by my colleagues Tavia Grant and Janet McFarland on the economic challenges facing today's young adults.
  • Hi Rob. A reader left this question in the comments section. Can you offer any advice?
  • I have been fortunate to graduate without debt, and although it is discussed as being a huge barrier to finding success and wealth, I do not at this point feel that I have some huge advantage. My degree in Economics aided me in getting a job at a bank that pays a salary on par with the Canadian average. I live at home, and have been able to bank a massive amount of my salary.

    However, whenever I do the budgeting for moving out of home, the budget gets very tight, very quickly. In this budget I set-out 20% in savings (10%RRSP & 10%TFSA), then I budget the remainder for estimated fixed & variable costs. Once this is done I do some calculations on how long it would take to amass the savings needed to buy a house, a car, or make any meaningful investments, and to be honest it seems like an eternity. Constantly I hear the mantra that my income will increase with time, but all I can count on is a paltry 3% per year.

    My question for you is, if you were in my position, 24 years old with a positive net-worth, what would you do? How would you approach your career, savings, and planning for major expenses? What goals do you think are realistic to set for age 30?
  • Here's what interests me about this question. The person who sent it in feels he is not advantaged by the fact that he has no student debt. But that's a massive, mega-advantage. Students who have debt owe, on average, in the low $20K range. Repaying that money can dominate your finances for years after graduation.
  • Now, to answer the actual question raised below: Bud, I think you're doing great. Just don't be in such a hurry. If it took you eight years to save for a home, no worries. You're most likely going to be working well past 65 and living to 90+. The clock is NOT ticking on you getting in to a house. One issue that will affect your savings capacity is making a move to your own apartment. That will take money out of your savings plan, but also help give you independence. Stay with your folks as long as it's comfortable, but you gotta leave sometime.
  • Why doesn't the government fund paid internships? Wouldn't a matching funds system make a lot of sense? Students would then leave school with job experience and educational attainment.
  • Why doesn't the government ________________? You could fill in this blank with all kinds of helpful ideas for putting students in a better position to success. The reason why government is quiet on this type of issue is that no one is screaming at them for change. Produce an angry, movtivated voting block of students and we just might see some changes.
  • I'm 25 and have graduated with $30,000 in stress-laden debt. I make about $60,000 per year (though I want to quit my job in favor of a less stable position in a more enjoyable industry). I put away about $240 per month to tfsa/RSP and have a safety net of $5,000. But, I am paying $150/month interest on my loans and barely anything on the capital.

    How big should my safety net be before I stop socking money away? Am I better to save in company stocks and a tfsa or just pay off my loan? Basically, where should I be putting my money. I also want to be able to save towards travel, but feel obliged to get rid of this debt.
  • Tom, kudos on your balanced approach in repaying debt while also investing for the future and building some savings. Shows maturity. However, i wonder if this approach is serving you well. You mention how your debt is causing you stress. What about accelerting payback so you get rid of it sooner? Take the monthly TFSA/RRSP contribution and use it to top up your debt payments. Then, consider using a portion of your $5,000 in savings to pay down the loan principal. Maybe $2,000? Eliminate your debt and then use the money you were paying to get back into RRSP/TFSA saving.
  • I'm a teacher in an alternative school - students who are looking to college programs to get ahead in life. I warn them using my personal story about taking a student loan. I think I'm doing them a beneficial service by warning them away from student debt; am I?
  • Mark, caution people about student debt by all means. But scaring them away from it strikes me as counter-productive without a realistic plan for acquiring the money needed to pay for college or university. How many years might a student have to work to pay for a four-year degree? How will they feel about being that many years past their friends? Are they confident they'll be able to switch from working back to school several years down the line? I think there's nothing inherently wrong with borrowing to go to college or university. They key is: What will your spending get you? What kind of jobs await?
  • I'd also like to ask about internship. I had a careers counsellor inform me that it could take 3-4 internships (paid or unpaid) to really launch a career in public relations. Whether this is true or now, it seems like unpaid internships are the norm when getting into any field. What are the benefits to this? It can feel like businesses are taking advantage of the lean job market. It's also a challenge to support yourself while doing these types of internships.
  • SL, this is a painful question. On one hand, how can you turn down an unpaid internship that will give you actual hands-on experience while also giving you a chance to network? On the other, interns are increasingly being used as grunts who are rotated in and out in a form of slave labour. I suggest you consider one or more unpaid internships that you undertake after doing some research on how to max out the benefits. Don't get on the treadmill of endless inpaid internships as that doesn't seem to be a career-building strategy.
  • I'm 23 and I came out of college debt free and bought a house this past March. I put a 33% down payment on my house and after my monthly expenses I have about 800 a month to put towards savings but I have been putting some of that money to prepaying my mortgage. I have about a 18k safety net at the moment. I have recently found out I am getting laid off from my job. I have decided to go back to school in September and the tuition will be about 8k a year for 2 years. Should I be continuing to prepay my mortgage? Or should I save what I can to put towards tuition? And how big of a safety net should I have?
  • Becky! As I started reading your note, I started thinking this woman has her stuff together and that maybe she should be running this forum. But I see that the challenges facing young adults in the workforce have in fact caught up to you. I'm not sure why you would keep pre-paying your your mrotgage when you're going to be facing substantial costs as a student while also having no income. As for your safety net, I take it that you'll be relying on it to pay bills while you're in school. If so, get the fund as big as it can be. Houses are treacherous. They can throw big costs at you any old time.
  • I'm very concerned about the state of the environment, and want to invest my money in a way that doesn't make me feel like I'm destroying the future. Is there an easy way for me to invest without profiting off of tar sands development and pipelines? Thanks!
  • Tim, I suggest you consider socially responsible mutual funds, which are run using screens to (a) block out companies in certain sectors and (b) to find the most ethical players in other sectors. Here's a website to get you started:
  • i recently opened a tfsa. I was told that I could put more than $5K in as I would be able to put in an additional $5K for every year since tfsas were introduced. Is that correct? Also, how risky is it to put a lot of money in tfsas as opposed to rrrsps?
  • jk, as long as you were 18+ all along, you can contribute $5,000 annually going back to 2009 to a TFSA. TFSAs and RRSPS are just administrative terms and don't really have any inherent risks themselves. The risks are in the investments you put into either of them. IE, stocks can be risk while offering the highest long-term return potential. High -interest savings accounts pay a bit more thn 1%, but are totally safe.
  • Being a midlife fellow, I can commiserate with the youth of today. With house prices and cost of living out of reach for those established in their careers how does a young person try to acquire assets, and a sense of self accomplishment? I do know that for those who do manage to toil, save, persevere, and purchase, will certainly have a sense of gratification and pride. It's almost come full circle: the homesteaders didn't have much but what they had they were mighty proud of.
  • Thanks for the comment, Bomberguy. You're onto something here. I think Gen Y needs to start creating its own definition of success, rather that using all the measures that the older generation has. It's frustrating that young adults are having trouble affording SUVs, big houses, cottages with boats, golf club memberships, but is this stuff really what they want?
  • hi, I'm in my late 20s - I started handing out resumes and doing internships at 17 and feel nothing has changed for 10 years - low pay, no security, no job training, etc. Not sayign it should be easy, but I feel those in positions of authority are not doing their part.
  • underemployzo, you didn't mention your educational background. Is there a way you could identify, say, a college program that would build on your work experience to make you more employable? What about an apprenticeship program in the trades? What government could be doing in your case is creating resources that would quickly and easily help you understand what your options are, and what government assistance might be available.
  • Hi, I'm 32 with a professional degree, a good job AND... $50K of student loan/car/LOC debt. I put $500 toward student loans/LOC, $450 toward car payments and $400 to TFSA/RRSP a month. Is that enough? I rent and have a $64K/year salary.
  • Hi Christine. Thanks for sharing this. It's a good example of how young adults can end up manging not just student debt, but also additional borrowing from car purchses, lines of credits and credit cards. What about taking an RRSP/TFSA holiday for a while to attack your debts, especially the student debt? Part of your approach should be to put the most emphasis on paying the debt with the highest interest rate.
  • I am 26, I just got a job that pays $42000 anually and I am in $30000 student loan debt. My expenditure is minimal at this just for car insurance, I was thinking of paying $700 per month to get out of debt asap, is that a good idea?
  • Sanka, love that you're thinking big in getting that student loan off your back. Your plan sounds realistic, as long as you have enough left to cover your living costs. If you're able to live cheaply, I'd even consider bumping up that $700.
  • Hi, In a housing market like Vancouver, what is the maximum income to debt ratio that you wouldn't baulk at?
  • PB, let's be practical. Given that the average house price in Vancouver is $720,000, a 5% downpayment would cost you a stiff $36,0000. A bigger dp is always better, but my big concern is cashflow related. If you bought a house with whatever downpayment, could you afford to pay all house-related costs and still keep up with your savings obligations?
  • I have been reading the wealthy barber lately. In that book, coumpounding interest is likened to God. But the problem is the returns they say you can achieve are 10-14%!! And they talk about homes costing $80,000. Where can a young person like myself expect to get those types of returns or a house that cheap?? Just another issue my generation has to deal with that others didn't.
  • LOL, Shawn. I guess we just outted the The Wealthy Barber as a book from a previous and cheaper financial universe. To me, all the basic wisdom in the book is spot on. But those numbers are way out of whack in today's world. Investment returns from a diversified portfolio might come in around 5 per cent after fees these days. Across Canada, the average house price is about $350,000. So, bottom line, you're right. These are definitely challenges for Gen Y.
  • Rob - thanks to you and others, there's an emerging consensus that young adults today do in fact face financial challenges that their parents didn't, and are really having a rough time of it. I'm somewhere in between - in my mid-30s, graduated with significant debt, but have now paid it back, have a good job, paying down a mortgage and have some disposable income. In short, I've done OK - but I've lived the issue and would like to support a fair solution. I'm wondering though, from your perspective, if you were a young adult today, what would you be asking governments to do to help young adults deal with this? What would the top two or three policy interventions be, in your view, that would really help alleviate the burden?
  • Chris, I like this question. My suggestions would focus on high school students in the last two years of school. I would like to see:
    -much more information provided on career options, job availability and salaries
    -more effort spent on helping students discover their strengths and interests, and then linking them to potential careers
    -more effort on highlighting different paths for students - ie, the gap year, working and going to school part time etc.
  • im trying to grow my rrsps and tfsas. however i dont want to lock too much in those accounts. how much cash/rainy day money should one have? ive only recently started contributing and feel like i should be catching up for those years that I didnt contribute because i was in prof school
  • A TFSA is actually a pretty good spot for an emergency fund. You can earn up to 1.8 - 2% in a high interest savings account and pay no tax on your gains (OK, the tax bill would hardly be terrible at those low rates). As for the amount of your emergency fund, the standard rule is three months of expenses. Start with one month and keep going.
  • Hi Rob, I recently read your article "2012 vs. 1984" and have followed the consistent stream of articles on renting vs. buying a home. I live in Toronto, renting with my partner, and in a professional graduate program. Even with our future combine incomes, I don't see it even remotely possible to purchase a house in the next 10 years without nearly devastating us financially. What is going to happen when my parents generation want to start downsizing from their now +$1M homes, and young families can't afford to buy?
  • RforL, that's a great question. I've seen demographic analysis suggestion immigration will help soak up demand for houses sold by aging boomers. But if a large number of today's young people bow out of the housing market permanently, this can not help but dampen demand for the big family homes boomers will be sellling in the decades ahead. Listen, don't beat yourself up if you can't afford a house. Enjoy the freedom of renting, and remember to invest your cost advantage over owning.
  • Thanks for the steady flow of questions, everyone. I'm running out of time and will tackle one more.
  • Hi Rob - Could you recommend any financial planning/investment guides as a modern-day alternative to the Wealthy Barber?
  • ks, let me put two books out there, the first being the newly updated version of The Wealth Barber, called the Wealthy Barber Returns.
    For students, there's a book I wrote this year that might be of interest: How Not to Move Back in With Your Parents: The Young Person's Complete Guide to Financial Empowerment
  • Thanks for all the questions and comments, everyone. I'm going to be writing more on the economic challenges facing young adults, so stay tuned. Students and recent grads, don't hesitate to tell me your stories. I'm also on
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