Advisors offer tough-love to young clients

Advisors offer tough-love to young clients

Advisors offer tough-love to young clients Increasingly, advisors with younger clients are forced to deal with student debt before jumping into investment portion of financial plan.

"As the upfront costs of post-secondary education continue to rise, more Canadians must rely on debt to pursue their studies," said Jessica McCormick, National Chairperson of the Canadian Federation of Students. "Higher rates of private borrowing—and the associated interest—mean banks are seeing higher profits on the backs of students.”

Many of these indebted students go on to do great things and with those accomplishments usually come significant financial benefits. In other words, they’re not going to be poor forever.

Advisors with the foresight to understand this get involved in a client’s financial planning at the earliest stages in their career development. While the initial payoff is negligible, the long-term financial gain can be significant as is the psychological reward of helping a younger person crawl their way out of debt.

There are many ways for a young person to handle debt management when first entering the workforce, says Toronto advisor Tony De Thomasis, a category finalist at this Friday’s Wealth Professional Awards brought to you by Invesco.

“You are responsible for your own future,” says De Thomasis. “Don’t try to blame someone else.”

Personal accountability is vital when dealing with a seemingly insurmountable problem such as debt, especially when you consider that the average university graduate leaves school with more than $26,000 owing to both public and private lenders.

“One [client] went back to school to be a teacher because she was short credits. She graduated at age 32 with about $60,000 in debt and I thought she’d never get out of it,” said De Thomasis. “She asked for my advice and I said you’ve got a really long haul. You’re in your 30’s and you’re going to take a long time to get settled down.”

Here’s where an advisor can make all the difference in the world.

“Get a roommate where you can share expenses. She [client] found a girl to share expenses with and within two-and-a-half years she actually paid off her debts,” said the veteran advisor. “You can’t go the conventional route. If you’re in that situation you have to sit down and say, ‘okay, what am I going to sacrifice?’”

And there’s always sacrifice.

“As an advisor I tell the truth. You can be in debt for the next 10 years or you have to make drastic choices,” says De Thomasis. “For a young person especially in Southern Ontario, their biggest expense is going to be their rent or living accommodations. If they can cut that down by half they’re going to have some good disposable income [to pay down debt].”

For De Thomasis, pulling the band aid off quickly is often the best advice an advisor can give to students entering the workforce.