Recently the Bank of Montreal published a report titled Generation Why! concerning the financial and nonfinancial issues faced by Millennials — the demographic currently in their 20s and 30s, formerly known as “Generation Y”.
This age group arrived in their adult years as our country became more comfortable with debt, particularly because of the recent low interest rates.
The report showed that just under one third of these Canadians are most concerned with paying down their accumulated debt.
Unlike previous generations, student debt is a major concern. The Canadian Federation of Students reported that the average Millennial has a student debt of $27,000.
Recently, the Bank of Canada increased the overnight interest rate for the first time in seven years. If this is the beginning of increasing interest rates debt for all Canadians, as well as Millennials, will become more significant.
Paying the interest on debt can be challenging. For some, paying higher interest rates on debt might be impossible.
Not only has the cost of an education increased, twice as many young adults have pursued a post-secondary education as had in previous generations.
Over a life time a strong education significantly adds to an individual’s earning power. In the short term, the amount of debt incurred as a result of education is significant.
Unfortunately, job security and job opportunities are weaker for this generation.
The BMO report stated that Millennials who have the ability to save are conservative. They quoted a 2014 study that found Millennials to be the most fiscally cautious generation since the Great Depression.
Added to that, 37 percent of men and 29 percent of women were concerned about their financial literacy.
The BMO report came with some suggestions.
One. Insure yourself against the risk of illness or disability. Developing an illness or disability will likely reduce your earning power, therefore it might be advisable to ensure against risk.
Two. Improve your financial literacy and create a financial plan in order to prioritize your objectives and develop a strategy to achieve them.
Three. Consider investing in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).
Apparently, the savings vehicle of choice for Millennials is a savings account. In many cases, in my opinion, that is a mistake. Both RRSPs and TFSA offer considerable tax advantages.
On a positive note, despite their economic challenges, Generation Why! found this demographic to be a more qualified age group at the time of entering their careers.
Hopefully they will use their skills to successfully manage their careers and personal financial management.