It might seem as if most millennials would rather surf their smartphones than listen to a financial advisor tell them about the virtues of saving for retirement. So, working with these young adults requires patience. But any time you can spend with a twentysomething professional whose career is beginning to take off, or the child of an established client, is time well spent.
While young clients and prospects may not share all the values of their parents, there are ways to get their attention and get them on the right financial track, according to Mark Halpern, president of IllnessPROTECTION.com. in Markham, Ont.
Halpern recommends you cover these four points when dealing with millennials:
1. Explain the value of an emergency fund
Putting a different spin on having reserve funds might help someone in his or her twenties want to save more, Halpern says.
It all depends on how you define “emergency.” It can be a sudden medical event, necessary car repairs — or even a vacation.
The point is an emergency fund provides the client with flexibility.
Says Halpern: “When there’s no money there, it leaves you with very few options.”
2. Educate clients on the long-term effects of debt
University and college students are often bombarded by applications for high-interest credit cards. So, there is a good chance these young clients have already accumulated some debt beyond student loans.
Educate your young clients on the negative effects bad credit can have later in life. Taking on more debt than they can handle now could hinder their ability to make important purchases in the future — such as a car or a home.
Also, emphasize the stress that comes with debt.
3. Start the RRSP discussion early
Halpern recommends educating clients on the tax advantages of RRSPs and the compound earnings that result from starting young.
For example, take a client who starts an RRSP at age 25, making biweekly contributions of $50. By age 65, assuming a 4% annual rate of return, he will have approximately $128,000 in that fund, according to the Investor Education Fund’s RRSP calculator. If the client starts at age 40 under the same conditions, the result is less than $56,000.
Make saving easy by setting up small automatic RRSP deposits — even as low as $25.
4. Explain risk management
When it comes to serious illness or accidents, Halpern says, “[young people think] nothing’s ever going to happen to them, and they’re probably right.”
However, he adds, “probably” is not “definitely.” Young clients should be aware of the ways planning can help if an illness or accident does occur.
“Your client’s greatest asset is not their house or their car,” Halpern says. “It’s their ability to earn an income [and] you want to protect that.”
Discuss how long-term disability insurance or critical-illness insurance can come in handy in the event of an emergency. Be sure to inform your client that the best time to apply for these products is when they are young and healthy, Halpern adds, because the products will cost less and clients are more likely to qualify for them.
This is the second instalment in a two-part series on intergenerational planning.