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Financial literacy: How to guide younger generations

November 2021

Financial literacy is important at any age; however, the earlier people start learning about saving, spending and investing, the more likely they are to make wise money decisions that will stick with them for life.


Thoughtful financial decisions made when you’re younger—and as your income typically starts to increase—can prevent years of costly mistakes, such as overspending or paying more interest or taxes than necessary.


It also means keeping more money in your bank account to spend or invest. Over time, those extra funds have the potential to increase in value and provide greater financial security.


“The more financial literacy you have, the more certainty there is when working to achieve your personal and financial goals,” says Jonathan McMurrich, a senior wealth planner at Gluskin Sheff.


Here we look at some financial advice for young adults, from the time they start post-secondary school to when they land their first full-time job and begin advancing their careers.


Post-secondary preparation years

Many teenagers start learning how to manage money when they get a part-time job. For many, some, or all, of those funds will go towards discretionary spending. However, with some basic financial skills, such as saving and managing credit, those earnings can quickly turn into wealth.


Tiffany Harding, vice-president and head of wealth planning at Gluskin Sheff, knows well the experience of teaching teens how to handle money, with 18-year-old sons who are currently on different career paths: one is attending post-secondary school, while the other is taking a year off to work before choosing where to go to school.


With both sons, the conversation is about making a budget, understanding the importance of saving and building a credit history. However, the immediate saving and spending needs are slightly different.


For the son attending post-secondary school, Harding has helped him find an appropriate student banking package and credit card. She also worked with him to map out the major expenses he anticipates over the next four years, including tuition, books and residence fees—to give him an idea of how much his education will cost. They then looked at how much of those costs can be covered by his registered education savings plan (RESP), scholarships, grants and other savings.


For the son currently working full-time, Harding says they discussed how to use his income to save and invest in a Tax Free Savings Account (TFSA). Going from a part-time job to working full-time can seem like a windfall to someone that age, which is why Harding is encouraging him to track his income and spending and ensure he’s also saving for the future.


With both sons, Harding says her goal is to teach them financial discipline now, so they’re not shocked later in life when it’s time to live on their own: “If you focus on the right behaviours now—having a budget in place and keeping track of your expenses—it’s going to help you for the rest of your life,” she says.


The post-graduation period

Graduating from college or university is exciting since it often means finally pursuing your career choice and commencing a path toward financial independence.


For many graduates, however, it can be hard to manage those first pay cheques — splitting the earnings between basic necessities, rent, costs of commuting or setting up a home office and saving (perhaps for a home down payment), for the future.


The decision of where to put those savings can be overwhelming, which is why it’s considered a good time to seek advice from a financial advisor.


“If you can start working with a financial advisor early in your career, it can really set you up well to make good long-term saving and investment decisions for the future,” says Mark Chan, vice-president of wealth planning at Gluskin Sheff. “With the power of compounding, even saving a little bit when you’re just starting out can be a great wealth-building exercise over time.”


Chan says a financial advisor can help walk you through the basics of investing—such as the different types of asset classes and investment accounts —and whether to contribute to a tax-free savings account (TFSA) or registered retirement savings account (RRSP), or both.

The early working years is also a good time to consider disability insurance, which can protect you or your family from an unexpected illness or injury that leaves you unable to work and earn an income.

Typically, the younger someone buys insurance, the less expensive the premiums will be, Chan says. These premiums would be locked in at a lower rate for the policy’s life, which creates a savings compared to securing a policy in later years. The additional benefit of doing a policy in your younger years is its insurability and you will likely have less health issues that insurers may exclude.


The decision also depends on whether your employer provides disability insurance coverage, and how much. Some people may wish to top up that insurance with their own coverage, Chan says.


The early working years

Once you’ve landed in the career you want—or at least the one you want right now—it’s important to start putting those earnings to work. For many employees, it means taking advantage of the employer’s group retirement solutions. These solutions can include RRSP savings plans, TFSA savings plans, defined benefit (DB) pensions plans, defined contribution (DC) pension plans, deferred profit-sharing plans, and in some cases non-registered savings plans.


For employees, many of these programs are akin to “free money,” says McMurrich, because the employer will often match any contributions made. And while most human resources departments will provide materials on these programs, it’s important for the employee to understand how the plan works and which programs are most suitable for their situation.


“Understanding and participating in the organization’s different savings plan can have a major impact on your financial future,” he says. For example, employees who have a DC pension plan—where your retirement income will depend on how much has been contributed to the plan and how the investments performed—will need to be more proactive in how the money is invested, whereas a DB plan provides a set amount of income in retirement with no investment decisions made by the employee.


In some cases, an organization may offer stock options or other types of equity compensation in lieu of higher pay or if they are unable to provide a competitive retirement savings plan. While equity compensation arrangements like stock options and restricted share units can offer significant upside, it’s important that when accepting this type of compensation in lieu of higher pay or participation in a traditional retirement savings plan, that the employee understands how the equity compensation works and what the risks and potential downsides are.


“Again, it goes back to financial literacy,” McMurrich says. “You need to make sure you understand what’s being offered.”


It can be challenging for some employees to understand the different choices for saving and investing. Having a financial advisor can help you make the right decisions, based on your own personal, professional and financial goals.


“Earlier is always better when it comes to financial planning,” McMurrich says. “And I think, for a lot of people, working with a financial advisor—going through the exercise of building a financial plan—can be very helpful for them to understand what it’s going to take for them to get to where they want to be.”



* Please note there are references to employees who are no longer with the firm, but were as of the date of publication.

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