Young people rarely meet the minimum requirements to become clients, but that doesn’t mean you can’t help this emerging generation of investors. Pass these five tips along to youth you meet with, or to their parents and grandparents.
01 Start Early
Parents can teach numeracy before age three and then move to currency and spending. Simply having a child pay for an item with cash can be highly instructive, because they learn money gets exchanged for goods and services.
My parents started investing for my brother the day he was born. They opened a joint trust account and put in $400 monthly. Once he turned 12, he earned an allowance and they mandated 50% of it go into his trust account. He was allowed to spend the other half, but since he’s a natural saver, that money was socked away too.
02 Start now
A lot of 20-somethings feel they’ve missed the savings boat. Tell them to stop waiting. It can be a hard sell, because millennials missed out on high interest rates, and thus never learned about return on savings.
But the principles of savings apply, even when rates are low. The magic savings amount is usually 10% of gross income, and students should pick, and stick with, a small amount (at least $25) to put away every month—preferably into a TFSA.
Young people often say, “I have to wait until I have money to invest.” Instead, they should start small now, and increase the amount every time their incomes rise or a liability (student loan; lingering credit card debt) gets paid off. Having grown up with wealthyboomer parents, some young people can’t fathom life without luxuries like a new car, vacations and takeout lunches. Help them understand that money could be going toward future financial goals.
Help young folks understand that learning to survive off a meager income will equip them for future financial emergencies, such as divorce or job loss. Even if they don’t make a lot, budgeting will help them with the flip side: reducing spending.
Budgeting will help young investors to understand their cash flow. Get them to take a look at their spending patterns over a number of months, and compare it to their take-home pay. This puts any overspending under a magnifying glass. Many automated websites do it for you, such as Mint.com.
04 Force savings
The best way to save is automatically—the bank will transfer a set sum from chequing to savings. Young people can start with a low savings rate and increase it by a few percentage points annually.
Many people save in their RRSPs and then use the resulting tax refunds for a new trip or toy. Instead, they should put that money back into investments or a mortgage. Anything else, and they’re missing the point of the RRSP. Signing up to have CRA refunds deposited directly into a savings account makes the process easier.
05 Set and review financial goals at least annually
Encourage younger clients to set realistic financial goals, such as maximizing a TFSA account each year. They can divide this amount by 12 ($416) and have it automatically withdrawn each month.
Encourage your clients to review these goals annually and update their progress. Too many give up halfway through the year because the goals are too difficult.