Millennials' money values are shifting, despite a difficult reality

Inflation is eroding their savings ability just as they're trying to plan and invest more

Millennials' money values are shifting, despite a difficult reality

Millennials’ money values are shifting, and they’re more interested in developing financial plans. But, while more want to save, the pandemic and inflation are making it difficult.

That’s one of the results from RBC’s annual Financial Independence in Retirement Poll. It also highlighted Canadians’ concerns, for the first time in a decade, about the impact of inflation on retirement finances and the fact RRSPs are rebounding after a seven-year downward trend.

“What stood out for me in the report is the impact that inflation is having on younger Canadians’ ability to save. Because food and shelter costs are significantly higher, that eats into an individual’s ability to save,” Stuart Gray, RBC’s Director of Financial Planning Centre of Expertise, told Wealth Professional.

“So, it’s not just thinking long term about the impact that inflation is going to have over 15, 20, or 30 years of retirement. It’s the impact that it has today. I think that’s the first time we’ve seen inflation concerns in the top-three responses as to what is most uncertain for them. I think the uncertainty of the last three years has certainly weighed in there, as well.”

Gray said clients who are already retired or planning to soon retire are concerned about the impact of inflation, which has reached a thirty-year high. But, employment has also shifted in the past three years and 29% of respondents – and 40% of the 25 to 34-year-olds – said inflation is driving up their fixed costs and limiting their ability to save. 85% of the younger group also said they’re most worried about trying to balance saving for today against saving for the future.

“I think that’s forcing people to think a little bit differently about what choices they’re making,” said Gray. “But it’s more of a barrier to investing as there’s just not enough money at the end of the month to consider savings on top of living expenses.”

The poll showed 48% of respondents have a financial plan – and 86% of those have a positive outlook on their financial situation. Gray attributed that to the fact they’ve had a chance to consider how to deal with the income, market, and pandemic shocks through their plan.

The number of Canadians building investment portfolios has risen to 28% from 25% last year. 32% of the younger investors, aged 25 to 34, were also interested in building those and 48% of them said they were willing to pay fees if that gave them access to higher returns.

The survey also showed that younger people are contributing more to RRSPs than a year ago. RBC’s poll last year showed 46% of those aged 25 to 34 held RRSPs. Now it is 53%. Within those RRSPs, more Canadians are holding mutual funds (up to 36% from 30% last year), stocks (up to 20% from 14% last year), and exchange-traded funds (up to 11% from 7% last year.)

“We’re seeing more of an actual investment planning approach to it, not just, ‘well, I’ve got to make my RSP contribution by the end of February in order to get my tax refund’,” said Gray. “So, I think they’re thinking forward, and the pandemic has probably had some impact on that.”

Gray noted there’s also been a shift toward more estate planning in the last three years.

Gray is seeing a greater shift for younger Canadians in all of this. Many are working in a gig economy without steady income or jobs and don’t expect to retire from a major institution with a pension, as many in the older generation have.

“I think we’ve seen enough of a shock over the last three years that people have to look at things differently. I think it’s going to drive the need for more planning and more focus on money, and I think we’re starting to see that,” he said..

He added that advisors can assist in this by ensuring that their clients have a good understanding of their current cash flow and the investment fees they’re paying, plus a financial plan with an emergency fund for short-term needs, so they don’t have to dip into their RRSPs.

“Hopefully, the tools that we’re bringing to the table to help people work digitally or with an advisor will help them look at projections for retirement and savings. The tools within online banking can also support budgeting and forecasting of expenses. I think we are at the start of a change,” said Gray.

“I’m feeling optimistic,” he added. “I’m seeing evidence of having a plan. I’m seeing evidence of thinking about my money, more than we’ve potentially seen in the past.”