In search of understanding

Learning money basics — and what to do with it.

In our Smart Money series, #MillennialMoney, we ask people living in the Greater Toronto Area to record every penny they spend in a typical week. Then, using tips from a financial adviser, we challenge them to cut their spending the following week so they can save more money. Will they fail or succeed?

At 28, Frank, a front desk manager at a Niagara resort, makes $35,000. He admits he has no idea how to start thinking about what to do with his money.

“I still have never had a credit card,” he says. He relies on a debit VISA to make purchases online, which he does frequently when gaming. “I spend $10 here, $20 there, but it all adds up.”

Other than that, he has a pretty modest lifestyle. His biggest expense is $300 to rent a room in Niagara, living with two others. He occasionally goes shopping at outlet malls for workout clothing, but tries to at least put half his paycheque — just over $1,100 every two weeks — into a savings account.

“I’m not even sure if that is what I’m supposed to do,” he says. “We didn’t have financial literacy classes growing up, and I lived at home for a long time so it just added to more confusion around how money works.”

On a typical day, Frank skips breakfast. At work, he is offered a $2 meal on a staff plan, which he uses at lunch on days he doesn’t bring a microwave dinner. After work, he’ll head home, exercise and then game for the rest of the evening.

On his weekends, he’ll drive home to Toronto to stay with his parents, see friends and buy groceries. “There’s more selection than in Niagara, so I like to stock up.”

Luckily, he saved up a lot from birthdays growing up, so he has no student debt from his two years in college.

Besides understanding his money, his other possible goal is to move abroad to work in hospitality, having consulted with friends living as expats in South Korea, Hong Kong and Singapore. “There are many more opportunities in Asia,” he says. “I think I could also advance to a higher level quicker.”

We asked him to share his daily spending to get a better idea of his financials.

The expert: Jason Heath, managing director at Objective Financial Partners Inc.

> Frank not having a credit card is good and bad. Credit cards can cause problems for young people who spend beyond their means. But having a card can help build a credit rating for the inevitabilities of borrowing to purchase a car or a home or for other purposes. Frank may want to consider a credit card that he pays off each month.

> Frank suggests he doesn’t know much about money, but I’d argue he’s got the most important part figured out. He spends less than he makes, and saves every month. Living below your means is the delayed gratification that will let Frank consider something like a move abroad — or in the long run help him save for retirement.

> I could call out his $200 per month on gaming. That said, everyone “wastes” money on something, myself included. Frank saves over 20 per cent of his modest after-tax earnings, which is way more than most people. Canada’s household savings rate is now over five per cent for the first time in about five years.

> It sounds like Frank walks to work, and only has a car to drive back to Toronto to see his family. Arguably his car is another discretionary expense he may not need, particularly if he’s saving for a move abroad or another goal.

> I think if I were Frank, I would be opening a TFSA account. His income is fairly modest, so the tax deductions from a RRSP contribution are not very attractive. His primary short-term costs could be travel expenses to move abroad, repairs for his car, or other potential unknowns. Since those costs are not likely to be substantial, and he’s saving $6,000 per year, he could probably take on a modest level of risk with some TFSA savings, as long as some of the funds were in cash or near cash to be available on short notice.

> Insurance is not part of Frank’s monthly budget, and he may want to consider disability insurance. A disability preventing him from working is the most important risk for him to mitigate. If he’s moving abroad, health-care costs will be an important consideration. COVID-19 may well delay any plans for Frank to move abroad anyway.

How he feels he did: It’s relatively similar spending, but it’s a “wake up call,” he says. “I can see how impulsively I make gaming purchases without even knowing how much it adds up to.” He says he’ll continue using this weekly guide, but gaming is his coping mechanism during the pandemic. Also, he’s surprised by all the pizza he buys.

Take-aways: The first thing Frank will do is get a credit card. “Having this template as a guide to my impulsive spending, I feel that I will be able to manage.”

He’ll open a TFSA soon and is looking into disability insurance, as even though he’s frequently exercising, he’s not eating too well and works in hospitality during the pandemic. “It’s good to be reminded to take care of myself.”

This exercise has given him a sense of relief. “Yes, the gaming costs look bad, but the advice made me feel that at least in other parts of my life I’m not overspending and I’m on the right track,” he says. “I hope that this helps me on my path in the next few years to be able to consider moving and working abroad.”

Frank says he’s also thankful for the money coach’s clear, laid-out advice. “Why didn’t we learn this in school?”