Fred Masters has one of the more unique resumes in the field of personal finance education. He spent decades teaching high school accounting, then retired early and launched a business giving personal finance presentations for schools, universities and non-profits.
He’s also a licensed mortgage agent and author of a book, Lessons on Mastering Money: The Personal Finance Guide for Canadians in their 20s & 30s. I invited Mr. Masters to do a Q&A on personal finance for young adults and we touched on housing, renting, investing and more. Here’s an edited transcript of our exchange by e-mail:
Q: Can you tell us one good financial habit that you commonly see among young adults these days, and one habit that needs work?
A: Canadians in their twenties and thirties have an insatiable appetite to learn more about personal finance. I see this during each of my presentations when organizers share that registration numbers have exceeded expectations. This isn’t a surprise to me anymore. Our young adults have been taught virtually no mandatory personal finance throughout their days in school, and money worries are the number one source of stress for the group. They want to learn about money from trusted sources right now. For example, research has shown that 75 per cent of Canadians feel that employer-sponsored financial wellness training would help reduce their financial stress
Q: Today’s young adults are as motivated to get into the housing market as any previous generation, even as prices soar way above the growth rate of incomes. What’s your advice to the frustrated young person who wonders if they will ever be able to afford a house?
A: Managing expectations is a key element of success in many areas of life, and definitely applies when it comes to getting into the housing market now. Young adults might want to:
- View home ownership as a journey; it’s just fine to rent, then buy a condo, then upgrade to a semi-detached or detached home;
- Be open to coming ‘down market;’ if buying a condo or townhouse is all that you can afford right now, so be it;
- Consider markets that are outside of large urban centres – they may offer value, relatively speaking;
- Be aware of how your credit score is calculated and aggressively take steps such as paying down debt to boost your score and improve your ability to carry mortgage payments;
- Consider opportunities to maximize earnings (including upgrading qualifications);
- Use a mortgage broker before you begin house shopping so that you have a handle on issues such as your budget, choosing fixed vs. variable products, the stress test rules and fees for breaking the mortgage contract;
- Recognize that very few buyers qualify for mortgages alone, so a mortgage application likely needs to be made by couples, siblings, friends or with co-signors.
Q: How concerned are you about whether young adults will be able to afford to own a home, raise families and save sufficiently for retirement?
A: There’s only one way forward here – save, save, save. Save until it hurts. Autosave by moving money automatically from your chequing account into your registered retirement savings plan or tax-free savings account the day after each payday. This year’s TFSA limit is $6,000. You would likely struggle to come up that much all at once, but autosaving $230 every other week does the trick.
Q: What’s your view on long-term renting, instead of home ownership?
A: As a licensed mortgage agent, I’ve seen the pressure that some feel to break into the housing market. When buyers financially stretch themselves to their breaking point to get into the housing market (which is unfortunately a reality with skyrocketing prices), they sacrifice peace of mind. Worries abound when it comes to making those sizable mortgage payments. What if my hours get cut at work? What if both my expected promotion and accompanying pay raise never materialize? What if interest rates are much higher when it comes time to renew the mortgage? For those who do decide to undertake long-term renting, there are no ‘what if’ worries around mortgage payments. Granted, the rental market is tight and stories about dramatic rent increases for those in newer units are now in the news. However, renting eliminates home ownership stresses. For those who do choose to rent long term, they absolutely must commit to saving and investing on a continual basis to fund retirement, especially when there’s no workplace pension plan in the mix. This is absolutely non-negotiable.
Q: The pandemic has democratized investing in a way we’ve never seen before by allowing young adults to trade stocks at no cost via mobile apps. What’s your take on this phenomenon – is it a big win for young investors, or are they learning habits that many not serve them well in the long term?
A: The ease with which any investor can now trade doesn’t mean that better decisions are being made. Our society is designed with speed in mind; everything needs to be fast. We just can’t expect, however, to get rich quickly. The easiest way for most people to tackle long-term wealth accumulation is to start as early as possible, save regularly and invest using index products. There’s nothing quick about that.
For more on renting, listen to our latest Globe and Mail Stress Test episode on how young adults are coping with higher costs. And what it means for their other financial goals.
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Rob’s personal finance reading list
Seven habits that lead to a happy retirement
The emphasis here is on protecting your heath – body and mind.
The bitcoin widow tells all
An excerpt from a new book by a twenty-something woman who married a bitcoin entrepreneur who died suddenly. More than 76,000 investors were owed $215-million. Internet trolls, death threats and much more.
Pro chefs on how to clean your oven
You invested a bunch of money in a decent oven? Here are some economical ways to keep it clean.
Who’s your RRSP beneficiary?
Useful input on how to pick someone to be the beneficiary of your registered retirement savings plan if you die.
Today’s financial tool
Guidance for parents on teaching their kids about money, including age-by-age suggestions.
The Money-Free Zone
A fuzzed-out bit of psychedelic excess for you. Wind Up Toys, by Uncle Acid and the Deadbeats. The mid-song groove is tremendously catchy.
Tweet of the week
A poll asking people on Twitter to pick what they see as the main driver of soaring home prices.
I voted for interest rates, as did most people.
In case your missed these Globe personal finance stories:
- How the Bank of Canada rate hike will affect your mortgage
- Mortgage rundown: The prime rate has started climbing. Where it stops, no one knows
- Why some CERB recipients who did everything right may still owe up to $2,000
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick