Lessons On Mastering Money... For Younger Canadians
For our younger adults, taking control of life’s personal financial journey is possible!
The keys to personal financial success are simple to understand—but very hard to execute—because they require self-discipline over the long term.
Canadians are enduring a personal financial wellness crisis from coast to coast to coast at this very moment. Many are totally lost when it comes to navigating their personal financial journey, and the stats back this up. FP Canada™ recently reported that Canadians rank money worries as their greatest source of stress, ahead of health concerns, work-related issues, and relationship struggles.1 A recent CPA Canada study found that 65% of Canadians admit that they worry about money and that half of the respondents couldn’t come up with $2,500 in an emergency.2 This money angst is impacting our work performance, too. Research coming out of Canada’s Financial Wellness Lab (which resides at Western University) pegs the annual loss in productivity caused by employees worrying about personal finances while working at upwards of $20B annually in this country.3
Don’t blame yourself if you feel that you don’t know much about money. It’s a shocking reality that most Canadians have been taught virtually no mandatory financial literacy during their school days. Yes, you may have learned some personal finance while taking an accounting course in high school, but that was likely an “elective” course as opposed to a “required” course that all students had to complete successfully. In fact, many who have graduated from the country’s top university business schools didn’t learn any personal finance content there either.
No wonder we’re struggling mightily when it comes to our finances. It’s as if we are being asked to write a test about content that we never even learned.
You Most Definitely Can Learn About Personal Finance
I’ve had the privilege of being able to deliver financial literacy content as a professional educator and, now, as a personal finance author and speaker for well over three decades. Over the last three school years, I’ve delivered over a dozen financial wellness presentations for multiple Canadian universities. Our younger adults have just an insatiable appetite for learning more about personal finance. They want to learn, and they want to learn now. There are some non-negotiables that I discuss during each of my presentations. What follows is a sampling of some of those timeless core lessons that I have shared with my young Canadian audiences over these many decades.
Your “Money Mindset” Is Crucial
You must be in control of your “money mindset”—personal finance success starts right here. I define your money mindset as the set of money-related values and beliefs that drive your life’s personal financial decisions. A simple example is cultivating an “attitude of gratitude”; be intentional about being thankful for what you have as opposed to focusing on what you don’t have. Valuing shared experiences as opposed to “buying stuff” is another example. Prioritize making memories and avoid the urge (which is often triggered by social media posts and marketing campaigns) to buy stuff.
Taking Control Of Your Financial Lives Together
If you are in a relationship, you must journey together when it comes to the money side of your lives. It may be the case that opposites attract, but a couple will be in for a bumpy financial ride if the partners possess opposing mindsets when it comes to the way they approach money. So, “talk to your honey about money” on a regular basis. It matters!
Understand The “Earn, Save, Invest Cycle”
You can’t save until you have earnings. You can’t invest until you have savings. Once you earn, then you can save and then you can invest. This is how to reach long-term financial goals. The way to drive savings upwards over time is to increase earnings over time. The way to do that is to find work that you absolutely love. You will then be in a position to embrace life-long learning so as to become more of a specialist. Your earnings potential will rise. You can then save more money and invest more of those dollars. There is no better way to maximize your odds of reaching your financial goals than by making the “earn, save, invest cycle” part of your life.
Save Until It Hurts
You could easily list a number of financial goals. Your list might include long-term goals, such as being able to fund a fun-filled retirement, and short-term goals, such as accumulating an emergency fund. If those goals are important to you, start saving for them today. Saving for these goals will involve delayed gratification; you will have to “do with less” now, with the trade-off being that you will have a better chance of reaching your financial goals. Saving will be tough. Your best way forward here is to “auto save”. This involves automatically removing dollars from your main bank account after each pay period and “hiding” the dollars on yourself by moving them to one or more separate accounts which line up with your savings goals. Online banks are ideal here. You want to make it inconvenient to access the dollars, so moving the money so that you don’t see it in your main bank account is wise.
“Get Rich Slow” Using Index Products & Tax-Sheltered Accounts
We want everything immediately. This can easily seep into our investment strategy and can open the door to making dream-busting investment mistakes. “Get rich quick” strategies are imminently filled with danger. Embrace the opposite to reach your financial goals: “get rich SLOW”. This is a superb strategy for reaching goals that are decades away. Let the power of compound interest, which Albert Einstein described as the eighth wonder of the world, work for you over many decades. Invest for long-term goals by using index products as opposed to buying actively-managed mutual funds or trying to select individual stocks. Over the long term, index products have consistently produced results that beat those generated by the vast majority of actively-managed funds.4 Embracing index products provides instant diversification which is a core strategy for mitigating investment risk. Being an index investor allows you to capture virtually all of the returns that stock markets from around the world generate. Time has shown that this is extremely effective. This strategy will also keep your fees down. High fees (such as those that actively-managed mutual funds charge annually) eat returns over time—that is a certainty. Robo-advisors provide an excellent starting point since they offer several index portfolios tailored to those with varying degrees of risk tolerance and provide advice as well. Remember too, that as adults, we all have access to Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) accounts, and the upside of being able to let dollars grow inside these tax-sheltered plans is significant.
You Can Do This!
The keys to personal financial success are simple to understand—but very hard to execute—because they require self-discipline over the long term. Having said that, the payoff—taking control of your financial life—is worth it, and young Canadians have time on their side. Your future self will thank you for implementing the strategies outlined here. You can do this, and I look forward to sharing more lessons on mastering money in the coming issues of Canadian MoneySaver to help you on your financial journey, as I have done for others for decades.
Fred J. Masters, BBA, BEd, PQP, is the author of Lessons on Mastering Money: The Personal Finance Guide for Canadians in their 20s & 30s, which was recognized as one of the Top Ten Financial Literacy Books from around the world in the inaugural Money Awareness and Inclusion Awards in 2022. He is the President of Masters Money Management Inc. and has given financial wellness presentations to all demographics in Canada, including university students and alumni. He is a retired professional educator, having taught senior financial accounting for the Waterloo Catholic District School Board in Ontario for three decades. He is also a licensed mortgage agent in Waterloo Region. He can be reached at F.Masters@mastersmoneymanagement.ca. To find out more, visit www.mastersmoneymanagement.ca.
This work contains the author’s opinions and ideas as related to the subject matter. The content is by no means designed to provide any reader with individual financial advice. Note that past performance is not a guarantee of future results when it comes to any specific investment or investment strategy. Always consult a competent financial professional for advice when it comes to making financial decisions. No guarantee is made with respect to the accuracy or completeness of the content.
4 https://www.spglobal.com/spdji/en/documents/spiva/spiva-canada-mid-year-2022.pdf