Last night I was kindly invited to speak at an event for the “Millennial Generation” hosted by AGF Investments. It was an interesting and fun evening filled with a lot of great questions and great food. But of all the questions sent to the advisors at the front of the room the question that I failed at was “what do you tell a poor client?”
This question took me off guard because when I looked in the room I didn’t see any poor people. I saw a lot of young professionals that weren’t yet at their peak earning potential, but that is part of growing up. These people weren’t poor, they just didn’t have a lot of money.
That distinction may seem academic to someone sitting at home on a Friday night who can’t afford to go out. After all, what is it to be poor if a lack of money doesn’t define you? But poverty is about a permanence of state, and not earning enough money can be temporary. Real poverty is about having a lack of options.
For instance, most Canadians would likely say that don’t have enough money, which isn’t the same as saying they are impoverished. It is simply a reflection of how our wants increase and grow with our incomes. In 2014 the research firm YouGov, Inc. did a survey looking for people to identify how much they needed to earn to be “rich”. Unsurprisingly as people earned more their idea of what constituted “rich” grew with their income bracket, which is why so few people self-identify as being wealthy.
You can read the whole story about that from the New York Times. But for young Canadians who are fresh out of university, the climb up the financial ladder to long term wealth can seem daunting to say the least, and living in big cities can make modest salaries seem virtually impoverishing.
But that doesn’t make you “poor”.
Poor means a lack of options, or opportunities to change your situation. Well educated young Canadians in junior professional roles have lots of opportunities. But there is also a reason that we say youth is wasted on the young. Because young Canadians who don’t start saving, defer starting RRSPs and TFSAs, find that they are scrambling in their 40s and 50s to save for their retirement. They do have fewer options and are a great deal poorer for it. This isn’t a hypothetical; lots of Canadians are finding themselves in exactly this situation. Saving isn’t just about putting money aside, it’s about keeping options open in the future.
The other day the Globe and Mail talked about the growth of debt among seniors, a move that was described as making seniors “Financially Fragile”. The core of investing revolves might be described as revolving around this principle: avoiding fragility. Frequently we represent investing as freeing people to enjoy their retirement on the beaches of Cape Cod, with sweaters draped over shoulders. But investing and saving is about being able to deal with all the rough spots in life.
Unexpected costs like new furnaces or car repairs can undo vacation plans and cottage retreats. Saving early doesn’t just help plan a life of leisure, it insures that your best laid plans aren’t upended by all the other things that life throws at you. It is far easier to be poor in old age once you’ve earned your last dollar than it is when you are younger and millions of opportunities await you.
So if you were one of the young Canadians worried that you don’t make very much, keep in mind that it is temporary. But if you want to avoid being actually poor in the future, start saving today so you aren’t panicking tomorrow.