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 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 ________________? 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.
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.
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?
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.
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.
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.
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?
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 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.
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.
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?
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.
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.
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.
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.