Millennial Money Mistakes
Saving is Not a Priority
Since the dawn of the millennium, there has been an alarming trend with “millennials” (people who have reached adulthood after the year 2000), who have not been growing their money through careful and diligent investing. According to an article in the Business News Network, only 5% of millennials aged 25-34 were matching the previous $6,500 contribution limit to their TFSA (the 2024 Federal budget raised the annual TFSA contribution limit to $7,000).
The aftermath of the 2008 financial crisis took its toll on the millennial generation, with a report that only 61% of millennials invest while the other 39% keep their assets in cash and only 19% prefer equity investments mostly in Canada. Saving is difficult because it involves delayed gratification, which calls for discipline and self-control now to reap the benefits later.
The easiest way to save is to have the money automatically deducted from your paycheque or bank account and put into your RRSP or TFSA. If your employer offers contribution matching, you get an instant return on your investment. The savings should be invested in global equites while minimizing fixed income investments, to maximize long-term returns.
Spending Money on Unimportant Things
Every now and then, there is no harm indulging in amenities such as coffee or a muffin. However, purchasing small items excessively can begin to add up down the road. Also, frequent and/or expensive vacations, frequent leasing/buying of vehicles, etc. aggravate the situation. In most cases the problem is instant gratification as opposed to saving for the future. Identifying unimportant purchases can go a long way to saving money. The odd treat is OK but in terms of saving for retirement exercise restraint, if you want to have enough money for retirement.
Buying Risky Investments
While many millennials are risk-averse, some of those who are in the equity market are too wild. Instead of taking a long-term approach, they look to getting rich quickly by taking on increasing financial risk. Unfortunately, this does not always work out: one study analyzed a set of portfolios from a sample of millennials and discovered both higher risk and lower returns. Concentrating on good quality global equity mutual funds is much better.
Investing is a marathon, not a race.
Avoiding Insurance
Millennials are in their physical primes and have a mindset of “invincibility,” which can lead to a false sense of security and a refusal to purchase insurance believing it will “never happen to them.” Declining insurance is one of those decisions that can seem like a great money saver at first – until life proves otherwise
Taking a Casual Approach to Learning about Finance
Instead of seeking professional advice, millennials might just ask their friends about what they are doing. A report by the Investor Education Fund (IEF) discovered that 64% of millennials surveyed said they do not even understand the financial terms used by their investment advisors.
Not being serious about money can be very expensive. If millennials consider the common mistakes made by their generation, they can be one step closer to securing their financial future.
Call today, to set up an appointment, so we can discuss sound financial planning for your future. Also, visit my business website (myfinancialsolutions.ca) for additional financial information on insurance, retirement/estate planning, investments and whole host of other financial topics.
Robert Hughes,
P. Eng., CFSB, CFP, CPCA
