Back when I was young, I had to wade through forty-feet of debt just to buy an iPod.
So maybe it doesn’t quite have the same ring to it as your uncle’s tales of forty feet of snow and black and white television, but the truth is Gen Y – “Millenials” born between 1981 and 1999 – face a new range of financial challenges the Boomers managed to avoid 40 years ago.
High education costs, low salaries, large debt loads and an exhausting amount of temptation to shop beyond their means are the greatest obstacles Gen Yers will have to overcome to build a solid financial foundation, says a new report released by TD Canada Trust.
“There is no question that the job market is tighter, university costs higher and salary growth lower for young people today,” says Raymond Chun, a senior vice president at TD Canada Trust.
Saving Is A Struggle For This Age Group
According to the poll of 1300 Millennials and 2200 Boomers (born 1946 to 1964), 34 percent of Gen Y find it nearly impossible to save.
The biggest obstacle cited by Gen Y is post-secondary education debt with 44 per cent of Gen Y versus 18 per cent of Boomers calling it a challenge. Inadequate salaries that are too low to cover living expenses were also of concern with 39 per cent of Gen Y struggling versus 30 per cent of Boomers.
Sky-high debts from credit cards, loans and lines of credit also stifle saving efforts, say 38 percent of Gen Y versus 26 percent of Boomers. And the sweet temptation of fancy gadgets and other consumer goods beyond their means prevented 36 per cent of Gen Y from saving while only 16 per cent of Boomers found themselves challenged by the spending bug.
Although Chun acknowledges that the pressures of a modern-day 20-something are valid, there are still lots of ways to grow those savings.
“It is tough for young people to balance all of their financial obligations as they enter adulthood, but this is precisely why it’s important to be committed to saving even just a little each week – every dollar counts,” says Chun. “Savings provides some freedom if a great opportunity like a new job overseas comes up, or as a financial cushion in the event of something like temporary job loss.”
Which is why young people should try setting aside three to six months’ worth of essential expenses as an emergency fund, notes Chun.
He also offered up more advice on savings:
How To Get Started
As Chun says “every little bit accounts”. Even putting away $25 a week helps – after all that’s $1300 at the end of the year.
It may sound silly but sometimes it helps to physically put that money in a piggy bank and forget about it. You might be surprised with the accumulation.
Count Those Pennies… er… Nickles
Budget, budget, budget! There are plenty of handy apps for mobile phones to keep track of what you’re spending. Heck, even a spreadsheet allows you to budget. Highlight your essential expenses like food, rent and transportation. Try reviewing your budget and cutting out the luxury items like coffee on the way to work or eating out strictly for convenience.
Make Your Money Multitask
It’s important to save and put money toward debt at the same time.
“As a general rule, the amount of debt people carry should not exceed 40 per cent of their pre-tax monthly income,” says Chun.
So if you bring in $3000 a month, debts should not amount to more than $1200. If you have a heavy debt load, focus on paying down higher interest debt like credit cards before putting a focus on saving. If you find yourself without money to put into savings, it might be time to sit down and revaluate your expenses or chat with a financial advisor.
Make it Second Nature
Some habits are good. If you can work savings into your monthly ritual or set up a pre-authorized transfer, your savings will grow faster and more fluidly.
“With planning and discipline, young Canadians can lay the foundation for a solid financial future by diligently tracking their cash flow and creating a plan for saving and spending,” adds Chun.