Finance rules not standing test of time

Experts warn not all financial advice applies to younger generations

Start saving for retirement in a Registered Retirement Savings Plan as soon as possible. Make sure you’re saving at least 10 per cent of your income. Don’t spend more than a third of each pay check on housing — but don’t rent forever either.

Those are some of the financial maxims younger generations hear from well-intentioned parents and other figures in their lives, but experts say that many of those go-to personal finance rules no longer apply.

“I think the biggest issue is that there was more, maybe, similarity in the experiences of previous generations … (the) housing market was mostly affordable, people graduated with mostly not too much debt, jobs tended to be stable, many of them had pensions,” said Liz Schieck, a certified financial planner with Toronto-based The New School of Finance, an advice-only financial planning and coaching firm.

That means that 30 years ago, there was a higher likelihood it would work out well when one friend gave another advice.

“The experiences are so diverse in the generations now,” Schieck said, noting that financial advice from someone unfamiliar with the recipient’s complete money situation should always be taken with a grain of salt. One of the most common pieces of advice is to start saving for retirement with an RRSP, she said.

However, that vehicle may not be the best choice for them, she said, instead suggesting a TaxFree Savings Account.

The federal government introduced the TFSA in 2009 for people 18 and over to save money without receiving a tax deduction or paying tax on money earned in the account through capital gains or other means. There’s a yearly limit on deposits and the lifetime contribution limit to date totals $69,500.

Unlike the RRSP, withdrawals don’t incur a tax penalty, making it more flexible for millennials and Gen Z who may need to access some of their savings before their golden years, she said, whether for a home down payment, to go back to school ahead of a career change or even save for a vacation.

It can be more beneficial for people to save in a TFSA until they’re in a higher tax bracket, she said.

“I think it’s 100 per cent that most people from previous generations, they didn’t have the TFSA,” Schieck said, noting it has only existed for a little over a decade and many people in older generations weren’t able to use it as part of their retirement planning in the long run.

The outdated “rules” can be interpreted afresh.

“I actually think that what most people mean is: Start saving for the long term as soon as you can. And that’s great advice.”

Often though, the advice to save early and often comes along with other famous golden rules of personal finance: To tuck away 10 per cent of pay cheques and always take advantage of an employer-matched retirement savings plan.

“The 10 per cent is aspirational,” said Janet Gray, a certified financial planner with Money Coaches Canada, an advice only financial planning and money coaching service.

“I don’t think it’s always fitting.” Younger generations may have more constraints within their budget than those before them, said Gray, including larger housing costs, monthly student debt repayments and more.

When it comes to employer match programs, the advice is often not to leave so-called free money on the table, said Schieck.

However, that may not make sense for employees right away, she said, adding she’s seen clients who save for retirement, but don’t have enough left over for their monthly expenses and rack up thousands in credit card debt.

Still, there’s some advice that’s held up from one generation to the next.

“Don’t spend more than what you earn,” said Gray, citing the dangers of carrying consumer debt.