Financial advisors and planning professionals could be crucial in building better habits
With inflation and interest rates rising, and a recession on the horizon, younger clients are struggling to make ends meet. But, one advisor says advisors can use this time to help them build better habits.
“Advisors, in this time, should really act as a great educator for their clients,” Woody Yang, a financial advisor with BlueShore Financial, told Wealth Professional. “I think the greatest thing for advisors to do right now is sit down with their clients and work with them to build a budget.”
Yang noted this may be particularly important with young professionals and those with young families who are trying to build some wealth for their future in the current economic environment.
While she recognized that clients could develop a budget on their own, she said it could help the advisors get a clearer picture of their young client’s household cash flow and build their financial plan. It also gives advisors a platform to begin to make some habit-changing suggestions.
The first is to delay large-scale purchases, such as a house, vehicle, or international trips, especially with more interest rate hikes coming. But, that could also apply to smaller items, which could put pressure on their expenses. They could put those off until the economy restabilizes.
“It’s a good time to set that cash aside for necessities for the next six to 12 months,” said Yang, noting clients could pull further ahead by eliminating some discretionary spending
The second suggestion is to work with clients to figure out how much debt they have, then guide them on how to pay it off, particularly now that interest rates are rising, possibly increasing their payments. One tool, for instance, is converting their home loan credit to an existing mortgage, which has a lower interest rate. That could help them put more on their mortgage.
“We can help them restructure it to pay it off faster and we can apply certain strategies to make them feel more comfortable during this time because their advisor is there to guide them,” sapid Yang. “That can really promote a healthy mindset with your clients as they learn we can all make short-term sacrifices that will bring us long-term financial success.”
Finally, advisors can educate their younger clients about the “buy now, pay later” plans that are appearing on more platforms, prompting them to keep buying, but on payment plans..
“I would tell them to practice delaying gratification now and avoid a service like this,” she said. “It would be better to save up to purchase that item later. That would be a better financial behaviour.”
“You can help them understand that when we’re hearing a lot of news about recession, which is creating a lot of fear, that it is just an inevitable part of the economic cycle. So, there’s nothing to fear if we can help them build healthy habits by working more closely with them in this period when things are getting difficult.
“It’s a great time to learn some different financial methods and build really good financial habits. Help them flex their muscles, so they will come out of this at a much better place.”
