Reacting to Big Six bank poll, young advisors take on student debt, parental support on rent payments, and more financial issues
The findings of a recent RBC poll of financial sentiment among secondary students in Canada might raise a few thousand eyebrows across Canada, but they’re certainly no surprise to two BC-based advisors.
“We don't only know what's happening from a financial perspective,” says Curtis Holt-Robinson, co-CEO at Skyward Financial. “We emotionally know what's going on for these students.”
Holt-Robinson and his partner, Tara Lalehparvar, started their financial planning practice nearly three years ago as university students. Having graduated recently, they’re now devoting themselves to helping young people in their client base, around 60% of whom are either going through post-secondary schooling or are fresh graduates themselves.
“You've done four years of education often at a university setting. And now you're thinking about getting a career, paying taxes … these are scary prospects,” Holt-Robinson (pictured above, right) says. “We really try to focus on a comprehensive approach that tackles all the different sides of adulting.”
The ‘Bank of Mom and Dad’: help for now, not forever
Around two fifths of the students in RBC’s poll expect that their parents will be taking care of their financial needs, compared to just 29% in 2013. That aligns with what Lalehparvar and Holt-Robinson are seeing in their practice.
“We've seen a lot of parents helping their children through saving,” says Lalehparvar (above, left). “We have many clients whose parents contribute on their behalf towards their RRSP or TFSA. Or help them towards saving for a very particular goal that they might have in the future.”
Many post-secondary students and recent graduates at Skyward Financial pay all their own bills but need their parents’ help to pay part of the rent – a particularly pressing concern in Vancouver, where many of the clients at Skyward live.
Given the steep costs of living in Canada, especially BC, Lalehparvar says most clients in that group need a part-time job to pay their bills, which breeds a host of issues including being unable to focus on their education.
“Parental help has always been significant for these clients. It reduces the urgency to establish a safety net or an emergency fund for students,” she says. “The lack of parental help would be detrimental to a lot of people's situations at this particular point in their life.”
While parents’ financial aid is key, Lalehparvar and Holt-Robinson stress that their clients can’t rely on that support forever. To help clients break away from the “Bank of Mom and Dad,” the two guide them through a gradual, education-based process of building up the funds to be independent by the time they graduate.
“We’ve helped some clients who were just months away from graduation work on a post-grad financial plan,” Lalehparvar says. “Those few months after graduation can be quite tough for them. They’re no longer living in student housing, they’re having to look for a job consistent with their new degree … There’s a lot of meticulous planning that has to go on.”
Debt planning 101: student loans vs. credit cards
Forty-five per cent of students in the RBC poll are expecting to graduate with up to $20,000 in debt. While that can be an intimidating sum to contemplate, the negative impact on students can depend on the type of debt they’re carrying.
Clients who mostly took on provincial or federal student loans, Lalehparvar says, are required to make no or very low interest payments, and the minimum repayment amounts are modest. What’s more concerning, she says, is when students get their first credit card and rack up a substantial balance on it.
“That's the type of debt that we are very, very careful to make sure clients avoid. In our education sessions, we want them to know exactly how they need to be using credit in an appropriate way so that they don't fall into that trap,” she says.
In some cases, clients may already be saddled with a significant amount of debt. To emphasize the urgency of their situation, the two will take them through the simple math exercise of multiplying their debt by the annual interest rate charged on a credit card, which is north of 20% per year.
“When we go through these difficult conversations about credit card debt with clients, it's very simple for us to calculate how much it’s costing them per year to not pay that off,” he says. “People wake up very quick when you just show them that.”
More than two fifths of the students polled by RBC said they want to reduce their non-essential expenses (47%) and create a sustainable budget (45%) – an encouraging sign that young Canadians want to take control of their financial lives.
With some clients at Skyward looking to start families soon, Lalehparvar says setting up an RESP early is crucial as it sets up the children to rely less on side hustles and parental help during their post-secondary years. She also recommends making the small but transformative mental adjustment of treating their savings and investment contributions as bills to be paid.
“When you are creating your monthly budget, treat that $25 to your TFSA as non-negotiable. And that way you will adjust the rest of your expenses and the rest of your spending habits around it,” she says. “When you're young, time is on your side, and you can achieve a lot more with a lot less.”
