The non-negotiable financial priority for tenants

Fred Masters has one of the most unique resumes in the field of personal financial education. He spent decades teaching high school accounting, then retired early and launched a business giving personal finance presentations for schools, universities and nonprofits.

He is also a licensed mortgage broker and the author of a book, Lessons in Mastering Money: The Personal Finance Guide for Canadians in their 20s and 30s. I invited Mr. Masters to do a personal finance Q&A for young adults and we talked about housing, renting, investing, and more. Here is an edited transcript of our email exchange:

Q: Can you tell us a good financial habit that you commonly see among young adults these days and a habit that needs to work?

A: Canadians in their twenties and thirties have an insatiable appetite to learn more about personal finance. I see this during each of my presentations when organizers share that registration numbers have exceeded expectations. This is no longer a surprise to me. Our young adults have hardly been taught mandatory personal finance throughout their school days, and financial worries are the number one source of stress for the group. They want to learn about money from trusted sources right now. For example, research has shown that 75 percent of Canadians feel that employer-sponsored financial wellness training would help reduce their financial stress.

Q: Today’s young adults are just as motivated to enter the housing market as any previous generation, even when prices far outpace the rate of income growth. What’s your advice to the frustrated teen wondering if they’ll ever be able to afford a house?

A: Managing expectations is a key element of success in many areas of life, and it definitely applies when it comes to entering the real estate market now. Young adults might want:

  • See home ownership as a journey; it’s okay to rent, then buy a condo, then upgrade to a townhouse or detached house;
  • Be open to the arrival of ‘bear market’; If buying a condo or townhome is all you can afford right now, so be it;
  • Consider markets outside of large urban centers: they may offer value, relatively speaking;
  • Be aware of how your credit score is calculated and take aggressive steps like paying down debt to raise your score and improve your ability to make mortgage payments;
  • Consider opportunities to maximize earnings (including improving ratings);
  • Use a mortgage broker before you start shopping for a home so you can control things like your budget, choosing fixed vs. variable products, stress test rules and breach fees;
  • Recognize that very few buyers qualify for mortgages alone, so mortgage applications may need to be done by partners, siblings, friends, or co-signers.

Q: How concerned are you about whether young adults will be able to buy a home of their own, raise families, and save enough for retirement?

A: There is only one way to go here: save, save, save. Save until it hurts. Save automatically by automatically moving money from your checking account to your registered retirement savings plan or tax-free savings account the day after each payday. This year’s TFSA limit is $6,000. It may cost you to earn that much in one go, but the automatic savings of $230 every two weeks works.

Q: What is your opinion on long-term rental, as opposed to home ownership?

A: As a licensed mortgage broker, I have seen the pressure some feel to enter the real estate market. When buyers push themselves financially to the breaking point to get into the housing market (which is sadly a reality with sky-high prices), they sacrifice peace of mind. Worries abound when it comes to making those important mortgage payments. What if my hours are cut at work? What if my hoped-for promotion and accompanying pay raise never materializes? What if interest rates are much higher when it comes time to renew the mortgage? For those who decide to undertake long-term rental, there are no worries about mortgage payments. Of course, the rental market is tight and news of dramatic rent increases for those in newer units is now in the news. However, renting takes the stress out of owning a home. For those who choose to rent long-term, they absolutely must commit to saving and investing on an ongoing basis to fund retirement, especially when there’s no workplace pension plan in the mix. This is absolutely non-negotiable.

Q: The pandemic has democratized investing in a way we’ve never seen before by allowing young adults to trade stocks at no cost through mobile apps. What is your opinion on this phenomenon? Is this a big win for young investors, or are they learning habits that many don’t serve them well in the long run?

A: The ease with which any investor can now trade does not mean that better decisions are being made. Our society is designed with speed in mind; everything has to be fast. However, we cannot expect to get rich quick. The easiest way for most people to tackle long-term wealth accumulation is to start as early as possible, save regularly, and invest using indexed products. There is nothing fast about it.

For more information about renting, listen to our latest Globe and Mail stress test episode about how young adults are coping with higher costs. And what it means for your other financial goals.


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