Young and stung by inflation

Opinion

Financial planning for Delaney Tycholis is less about saving for retirement, and more about figuring out having enough money to cover next week’s costs.

“If you do work in a service industry, you don’t get benefits,” says the 29-year-old, who has worked in the restaurant industry since she was a teenager.

“So, you’re saving for your next dentist appointment or next eye exam and new contacts—that’s the very near future.”

Tycholis supplements income with a side hustle, selling refurbished, redesigned vintage jewelry in local stores and on Instagram under the brand Daisy Wild Vintage.

Earning a few additional dollars per month from selling earrings, bracelets and necklaces, like so many other young adults, she struggles amid high inflation that makes many already challenging financial milestones feel even more elusive.

“I want to own a home someday, but it really isn’t in the cards right now because of rising costs—even bus fare has been going up,” she says.

A recent survey by RBC points to these challenges with many Canadians between ages 18 and 34 feeling more uncertain about their financial future than just a year ago with 18 per confident about their financial future down from 31 per cent last year.

“We found this group is very anxious,” says Stuart Gray, director of the financial planning centre of expertise at RBC.

And for good reason: more than a third of respondents in the age group stated they “are already living paycheque to paycheque,” he notes.

Among the poll’s other key findings were that 77 per cent young adult respondents worried about their cash flow, and more than half noted they weren’t well-equipped to deal with inflation.

Yet many polled also recognize the importance of saving for the future with 45 per cent stating building a financial safety net was important and 44 per cent saying investing to build wealth long-term should also be a priority.

“But they’re finding saving in the current environment more difficult because they don’t have disposable income,” Gray adds.

Certainly, millennials and generation Zs face a bevy of challenges from rising post-secondary costs to soaring food prices to higher borrowing costs for already unaffordable real estate.

“This backdrop has scarred millennials and other Canadians to some extent,” says Tyler Wood, senior financial planner with Meridian Credit Union in Oakville, ON.

Still, the challenging climate offers a chance to “reset” to this “new normal” of higher interest rates and inflation than seen in several years.

“Resetting is about getting back to the basics,” he says.

One upside for young Canadians today is a growing assortment of digital financial tools to deal with the financial basics, like budgeting apps tracking spending and uncovering savings—including NOMI for RBC clients.

And for those who can find cash flow to save for their retirement and other long-term goals, building wealth has never been more accessible with apps for investing in low-fee, all-in-one portfolios that rebalance automatically.

In turn, a 25-year-old able to contribute $250 a month to a tax-free savings account (TFSA), investing it in a balanced portfolio—which has a long-term historical return of about eight per cent annually—could have more than $350,000 in 25 years. Bump the contribution to $400, and the portfolio could grow to about $560,000 over that span.

Of course, finding money to build wealth today is challenging for young adults, but it’s also often difficult to convince those with the capacity to do so to actually invest for their future, says Marianne Assaf, principal in pensions and savings practice at actuarial consulting firm Normandin Beaudry in Montreal.

“When you talk about a retirement plan, it’s so far away from what they need to do right now.”

In turn, even when young workers are offered the opportunity to enrol in a workplace pension plan or group RRSP, only about half do, she says.

“That’s why we’re thinking about how these plans can be adapted to capture the interest of these employees to start saving.”

The actuarial firm has developed a possible solution called the Savings Highway offering young workers the ability to contribute to a group RRSP for retirement, or a TFSA for short-term goals like a vacation, she says.

“The goal is to design a pension plan that meets the needs of all generations of employees.”

Assaf notes Normandin Beaudry already offers this option to its young workers, many of whom appreciate the flexibility of a TFSA.

At the same time, the employer’s matching contribution goes into their group RRSP or pension for long-term savings.

The whole point, she adds, is to create a habit of saving. “So even if you’re not saving your money for retirement, you get used to living off a portion of earnings with money set aside in a TFSA,” she says. “And then maybe in 10 years, the savings goal will change to retirement.”

Unfortunately, saving for retirement is often not just a far-off goal for young adults. It often seems impossible, given all the other financial obstacles.

More near-term goals like post-secondary education are on the mind of many, including Tycholis, who is mulling over formal training as a silversmith.

“But we all know how expensive school is, so sometimes it’s like do I put money into my business for today, or do I put it toward education for my longer-term future?”