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BACKPACKS, BUDGETS AND FINANCIAL PLANNING


When we meet with recent graduates or young adults, we use analogies that resonate with the age group, often comparing financial plans to backpacks, and budgets to water bottles.

We take the students on a ‘financial hike’ – a discussion about financial goals and the different backpacks you need depending on the route of the hike. A day pack for short-term goals, a fun backpack and a retirement backpack – and all the different survival tools you need in each backpack and financial plan.

Graduates are often understandably nervous when they first meet with a financial planner.

It’s something they haven’t done before, but they really benefit from seeing a CFP professional and getting the basics in place right from the start. We tell them to continue to live like a student, keep their costs as low as possible and avoid the pitfalls like buying a flashy new car and adding to any existing debt.

Many questions at the first meeting relate to debt and present a good opportunity to introduce budgeting using the water bottle analogy, comparing the water to money: it comes in and it flows out.

This is a good introduction to budgeting and prioritizing goals, whether it’s paying off student loans, saving for a vacation or a down payment on their first home.

There are a lot of ‘firsts’ for this age group. It can be the first time they are earning a regular income, first payments on student loans or maybe saving for a first car. It’s important to identify their goals, prioritize them and then plan to achieve them. The amount they are earning doesn’t matter, but it is important to start a good habit and put something away every month. A financial plan helps one to see the whole picture and then stay on track.

Graduates are justifiably concerned about their debt. It’s important to pay it off because as they move to the next stages of their lives, they will likely acquire more debt, for example if they purchase a home, CFP professionals can also share valuable insights about what banks look for when granting a mortgage and the value of establishing a good credit rating.

A 2017 survey conducted by Leger for the Financial Planning Standards Council shows that three in 10 Canadians say that assisting their children with post-secondary costs will or has already postponed their retirement and has or will prevent them from paying off their own debt. Through education and financial coaching services for young adults, CFP professionals can help create financial independence while alleviating some of the burden and guilt these young people are experiencing as a result.

Discipline is what it takes to block out the noise, commitment is what it takes to walk the path to financial success and patience is what it takes to reach the goal.

Clement Chung, CFP, CLU

Certified Financial Planner

www.clementchung.com