This House Kills the Middle Class

TheHighestBidder-14
This house sold for $1,000,000 in Vancouver. Is it houses that are in demand, or land?

In the mountains of articles written about Toronto’s exuberant housing market, one aspect of it continues to be overlooked, and surprisingly it may be the most important and devastating outcome of an unchecked housing bubble. Typically journalistic investigation into Toronto’s (or Vancouver’s) rampant real estate catalogues both the madness of the prices and the injustice of a generation that is increasingly finding itself excluded from home ownership, finally concluding with some villain that is likely driving the prices into the stratosphere. The most recent villain du-jour has been “foreign buyers”, prompting news articles for whether their should be a foreign buyer tax or not.

What frequently goes missing in these stories are the much more mundane reasons for a housing market to continue climbing. That is that in the 21st century cities, like Toronto, now command an enormous importance in a modern economy while the more rural or suburban locations have ceased to be manufacturing centres and are now commuter towns. Combined with a growing interest in the benefits of urban living and the appeal of cities like Toronto its no surprise that Toronto is the primary recipient of new immigrants and wayward Canadians looking for new opportunities.

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Toronto itself, however, has mixed feelings about it’s own growth. City planners have made their best efforts to blend both the traditional idea of Toronto; green spaces, family homes and quiet neighbourhoods, with the increasing need of a vertical city. Toronto has laid out its plans to increase density up major corridors while attempting to leave residential neighbourhoods intact. Despite that, lots of neighbourhood associations continue to fight any attempt at “density creep”. Many homeowners feel threatened by the increasing density and fear the loss of their local character and safety within their neighbourhoods, at times outlandishly so. Sometimes this comically backfires, but more often than not developers find themselves in front of the OMB (Ontario Municipal Board) fighting to get a ruling that will allow them to go ahead with some plan, much to the anger of local residents and partisan city councillors.

The result is that Toronto seems to be growing too fast and not fast enough simultaneously, and in the process it is  setting up the middle class to be the ultimate victims of its own schizophrenic behaviour.

High house prices go hand in hand with big mortgages. The bigger home prices get the more average Canadians must borrow for a house. Much of the frightening numbers about debt to income ratios for Canadians is exclusively the result of mortgage debt, while another large chunk is HELOCs (home equity lines of credit). Those two categories of debt easily dwarf credit cards or in store financing. This suits banks and the BoC not simply because houses are considered more stable, but because banks have very little at risk in the financial relationship.

To illustrate why banks have so little at risk, you only need to look at a typical mortgage arrangement. Say you buy a $1 million home with a 20% down payment, the bank would lend you $800,000 for the rest of the purchase. But assume for a second that housing prices then suddenly collapse, wiping out 20% of home values, how much have you lost? Well its a great deal more than 20%. Because the bank has the senior claim on the debt, the 20% of equity wiped out translates into a 100% loss for you, the buyer. The bank on the other hand still has an $800,000 investment in your home that must be paid back.

Bank vs you

By itself this isn’t a problem, but financial stability and comfort is built around having a set of diversified resources to fall back on. In 2008, in the United States, home owners in the poorest 20% of the population saw not just their home prices collapse, but also all of their financial resources. On average if you were part of the bottom 20% you only had $1 in other assets for every $4 in home equity. By comparison the richest 20% had $4 in other assets for every $1 in home equity. The richest Americans weren’t just better off because they had more money, but because they had a diversified pool of assets that could spread the risk around. Since the stock market bounced back so quickly while much of the housing market lagged the result was a widening of wealth inequality following 2008.

Housing impact
The impact of 2008 on household net worth by quintile. From House of Debt by Atif Mian and Amir Sufi

In Toronto the situation is a little different. Exorbitant house prices means lots of people have the bulk of their assets tied up in home equity. Funding the enormous debt of a house may preclude investing outside the home or building up retirement reserves in RRSPs and TFSAs. A change in interest rates, or a general correction in the housing market would have the effect of both wiping out savings while simultaneously raising the burden that debt places on families.

The issue of debt is one that the  government and the BoC take seriously, yet despite the potential impact of high debt levels on Canadians and the looming threat it poses to the economy the mood has remained largely indifferent. The BoC, under the governorship of Stephen Poloz, has said that it isn’t worried too much about Canada’s housing market. This isn’t because there isn’t a huge risk that it could implode, but because even if it does it is unlikely to start a run on the banks. By comparison the view of Stephen Poloz on the debt levels of Canadians is that its your problem. A curious stance given that the BoC’s position has been to try and stimulate the economy with low borrowing rates.

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There will probably never be as full throated a reason for my job than the burden the Toronto housing market places on Canadians. From experience we know that concentrating wealth inside a home contributes to economic fragility, potentially robbing home owners of longer term goals and squeezing out smart financial options. But far more important now is that city councillors and home owners come to realize that the housing market is more prison than home, shackling the city to ever more tenuous tax sources and weakening the finances of the middle class. Until then, smart financial planning alongside home ownership is still in the best interests of Canadian families.

Are Economists Incompetent or Just Unhelpful?

 

 

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When economists get things wrong their missteps are practically jaw dropping. Despite making themselves the presumed source of useful information about economies, interest rates and economic management, often it seems that the economists are learning with the rest of us, testing ideas under the guise of sage and knowledgable advice. Their bias is almost always positive and the choices they make can be confounding.

As an example, let us consider the case of the Bank of Canada (BoC).

If there are perennial optimists in this world they must be employed at the BoC, for no one else has ever stared more danger in the face and assumed that everything will be fine.

For those not in the know, the BoC publishes a regular document called the Financial System Review, a bi-annual breakdown of the largest threats that could undo the Canadian economy and destabilize our financial system. Because they are the biggest problems we tend to live with them over a long time and thanks to the Financial System Review we can see how these dangers are presumed to ebb and flow over time.

For instance, two years ago the four biggest dangers according to the BoC were:

  1. A sharp correction in house prices
  2. A sharp increase in long-term interest rates.
  3. Stress emanating from China and other Emerging Markets
  4. Financial stress from the euro area.

Helpfully the BoC doesn’t just list these problems but also provides the presumed severity and likelihood of them coming to pass and places them in a useful chart.

Here is what that chart looked like in June of 2014:

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The worst risk? A Canadian housing price correction. The likelihood of that happening? very low. Meanwhile stress from the Euro area and China rate higher in terms of possibility but lower in terms of impact.

By the end of 2014 the chart looked like this:

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Unchanged.

Interestingly the view from the BoC was that there was no perceivable difference in the risks to the Canadian market. Despite a Russian invasion of the Ukraine, the sudden collapse in the price of oil and the continued growth of Canadian debt, the primary threats to Canada’s economy remained unmoved.

So what changed by the time we got to mid 2015?

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The June 2105 FSR helpfully let Canadians know that, presumably, threats to Canada’s economy had actually decreased, at least with regards to problems from the euro area. This is curious because at that particular moment Greece was engaged in a game of brinkmanship with Germany, the IMF and the European Bank. Though Greece would go on to technically default and then get another bailout only further kicking the can down the road, the view from the BoC was that things were better.

Interestingly the price of oil had also continued to decline in that period, and the BoC had been forced to make a surprise rate cut at the beginning of the year. Debt levels were still piling up, and there was a worrying uptick in the use of non-regulated private lenders to help get mortgages.

None of that, according to the analysts at the Bank of Canada, apparently mattered. At least not enough to move the needle.

The December 2015 FSR is now out, and if we are to take a retrospective on the year we might point to a few significant events. To begin, the economy was doing so poorly in the summer that the BoC did a second rate cut, which was followed by further news that the country had technically entered a recession (but nobody cared). Europe’s migrant crisis reached a tipping point, costing money and the risking the stability of the EU. Germany’s largest auto maker is under investigation for a serious breach in ethics and falsifying test results. China’s stock market began falling in July, and the Chinese government was forced to cut interest rates 5 times in the past year. The United States did their first rate hike, a paltry 25 bps, but even that has helped spur a big jump in the value of the US dollar. Meanwhile the Canadian dollar fell by nearly 20% by the end of 2015.

And the Bank of Canada says:

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Things are better? Or not as severe?

In two years of producing these charts, despite continued worsening of the financial pictures for Canada, China, the EU and even the United States, the BoC’s view is still pretty rosy. What would it take to change any of this?

Whether they are right or not isn’t at issue. It’s the future and it is unknowable. What is at issue is how we perceive risk and how ideas about risk are communicated by the people and institutions who we trust to provide that guidance. This information is meaningless if we can’t understand its parameters and confusing if a worsening situation seems to change nothing about underlying risk.

As you read this I expect the Chinese and global markets to be performing better this morning on reassuring news about Chinese GDP. But I would ask you, has the risk dissipated or is it still there, just buried under positive news and investor relief? It’s a good question and exactly the kind that could use an honest answer from an economist.

 

The Difference Between Mostly Dead, and Dead

8463430_origThe first (and so far only) good day in the markets for 2016 shouldn’t go by without instilling some hope in us investors. The latter half of 2015 and the first weeks of 2016 have many convinced that the market bull is thoroughly dead, having exited stage left pursued by a bear (appropriate for January). The toll taken by worsening news out of China, falling oil, and the rising US dollar have left markets totally exhausted and despondent. But is the bull dead, or just mostly dead? Because there’s a big difference between all dead and mostly dead. In other words, is there a case to be made for a resurgence?

I am, by nature, a contrarian. I have an aversion to large groups of people sharing the same opinion. It strikes me as lazy, and inevitably many of the adherents don’t ultimately know why they hold the views that they do. They’ve just gotten swept up in the zeitgeist and now swear their intellectual loyalty to some idea because everyone else has. And when I look at the market today, I do think there is a contrarian case for a market recovery. Not yet, it’s too early, but there are reasons to be hopeful.

Letters_to_a_Young_Contrarian
This book had a big impact on me growing up.

First, let’s consider the reasons we have for driving down the value of most shares. Oil prices. The price of oil has come to seemingly dictate much of the mood. Oil’s continued weakness speaks to deflation concerns, and stands in for China. It’s price is undermining the economies of many countries, not least of which is Canada. It’s eating into the profits of some of the biggest companies around. It’s precipitous fall has lent credence to otherwise outlandish predictions about the future value. Yet this laser like focus on oil has eclipsed anything else that could turn the tide in the market. Other news no longer matters, as the oil price comes to speak for wider concerns about China and growth prospects for the rest of the world. In the price of oil people now see the fate of the world.

That’s foolish, and precisely the kind of narrow mindset that leads to indiscriminate overselling. The very definition of babies and bathwater. And negativity begets more negativity. The more investors fear the worse the sentiment gets, leading to ever greater sell-offs. Better than expected news out of China, continued employment growth from the US, and the fundamental global benefit of cheap energy are being discounted by markets today, but still represent fundamental truths about economies that will bring life to our mostly dead bull tomorrow.

Don’t mistake me, I’m not trying to downplay the fundamental challenges that markets and economies are facing. Canada has real financial issues. They are not driven by sentiment, they are tangible and measurable. But they are also fixable, and they do not and will not affect every company equally. The same is true for China, just as it is true for the various oil producers the world over. What we should be wary of is letting the negative sentiment in the markets harden into an accepted wisdom that we hold too dear.

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Put another way, are the issues we are facing today as bad or worse than 2011, or even 2008? I’d argue not, and becoming too transfixed by the current market sentiment, the panicked selling and the ridiculous declarations by some market analysts only plays into bad financial management and will blind you to the opportunities the markets will present when a bottom is hit and numbers improve.

So is the bull dead? No. He is only mostly dead and there is a big difference between mostly dead and all dead. We will navigate this downturn, being mindful of both the bad news and the good news. Investors should seek appropriate financial advice from their financial advisors and remember that being too negative is just another form of complacency, a casual acceptance of the world as it currently appears, but may not actually be.

Remember, the bull is slightly alive and there’s still lots to live for.

For over 20 years we have been helping Canadians navigate difficult markets like this, by meeting in their homes and discussing their personal situations around the kitchen table. If you are looking for help, would like a complimentary review of your portfolio, or simply want to chat about your finances, please contact us today.

Hyperbole and a Half: Terrible Financial Advice

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Walking into my office this morning I was bracing for yet another day of significant losses on global markets. It’s a tricky business being a financial advisor in good or bad markets. But seeking growth, balancing risk, and managing people towards a sustainable retirement (a deadline that looms nearer now with every passing year) only grows more challenging in terrible markets like the ones we are in.

In some ways it can seem like divining, working out which thread of thought is the most crucial in understanding the problems afflicting markets and panicking investors. Is the rising US dollar enough to throw off the (somewhat) resurgent American manufacturing sector? Has China actually successfully converted its economy, and is no longer requiring infrastructure projects to drive growth? Is oil oversold, and if so should we be buying it?

Aiding me in this endeavor is the seemingly boundless supply of news media. There is never a moment in my day where I do not have some new information coming my way providing “insight” into the markets. The Economist, the world’s only monthly magazine that comes weekly, begins my day with their “Economist Espresso” email I get every morning. No wake-up period is complete for me without glancing at the Financial Times quickly. My subscription to the Globe and Mail and the National Post never go unattended. Even facebook and Reddit can sometimes provide useful information from around the planet. After that is the independent data supplied by various financial institutions, including banks, mutual fund companies and analysts.

So what should you do when the Royal Bank of Scotland (RBS) screams across the internet “Sell Everything Before Market Crash”.

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The answer is probably nothing, or at least pause before you hit the big red button. It’s not that they can’t be right, just that they haven’t exactly earned our trust. RBS, if you may recall, was virtually nationalized following losses in 2008, having 83% of the bank sold to the government. In 2010 despite a £1.1 billion loss, paid out nearly £1 billion in bonuses, of which nearly 100 went to senior executives worth over a £1 million each. In 2011 it was fined £28 million for anti-competitive practices. In short, RBS is a hot mess and I suppose it is in keeping with it’s erratic behavior that it should try and insight panic selling the world over with a media grabbing headline like this.

I may be unfair to RBS. I didn’t speak to the analyst personally. The analyst was reported in the Guardian, a newspaper in the UK whose views on capitalism might be best described as ‘Marxist’, and inclined to hyperbole. It’s not as though I am not equally pessimistic about the markets this year, nor am I alone in such an assessment. But it should seem strange to me that an organization whose credibility should still be highly in question, who undid the financial stability of a major bank should also be trusted when calling for mass panic and reckless selling.

The analyst responsible for this startling statement is named Andrew Roberts, and he has since followed up his argument with an article over at the Spectator (I also read that), outlining in his own words the thoughts behind his “sell everything” call, essentially spelling out much of we have said over the past few months in this blog. I find myself agreeing with much of what he has written, and yet can’t bring myself to begin large scale negation of sound financial planning in favour of apoplectic pronouncements that are designed as much to generate headlines and attention as they are to impart financial wisdom.

Panic Selling

The point is not to be dismissive of calls for safety or warnings about dire circumstances. Instead we should be mindful in how we make sense of markets, and how investors should approach shocking headlines like “sell everything”. I am not a fan of passive investing, the somewhat in-vogue idea that you can simply choose your portfolio mix, lean back and check back in once every decade for a negligible cost. I advocate, and continue to advocate for ongoing maintenance in a portfolio. That investors must be vigilante and while they should not have to know all the details of global markets, they should understand how their portfolios seek downside protection. My advice, somewhat less shrill and brimstone-esque , is call your financial advisor, discuss your concerns and be clear on what worst case scenarios might mean to your portfolios and what options are available to you. If you don’t have a financial advisor, feel free to reach out to us too.

Concerned about the markets and need a second opinion? Please drop us a line and we will be in touch…

 

Pessimism is in! You Can Keep Your 2016

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At the end of December we pointed out the themes of 2015 were unlikely to disappear into 2016. It’s just that in 2016 we would be more likely to think of those themes as established rather than new. And while that’s certainly the case I didn’t expect 2016 to so openly embraced that principle.

On our first day of business in 2016 the Chinese stock market had tumbled so steeply that market trading had to be shut down. Canadian manufacturing data also showed that Canada had hit its lowest manufacturing point in years and that manufacturing was continuing to decline. Meanwhile Saudi Arabia looks almost poised for war with Iran as tensions continue to heat up over flagrant human rights abuses that finally seemed to cross the line for someone. At the very least we might assume that oil prices would have risen on the growing tensions of the Middle East, but even that has yet to be the case. And while the Canadian dollar continues to tumble, even the United States is starting to show signs of wear on its economy.
So what to do? Eternal optimist might be excited by the prospect of discounted markets, but given the nature and severity of the problems that we currently face, it is difficult to endorse the idea of simply jumping into last year’s losers. Consider China as an example. There have been expectations that China would face serious economic consequences for its boundless growth for a long time. Optimists that predicted that China’s top-down economy was more clever and more sound than our own have clearly now been proven wrong. With so much to unravel does it make sense to invest in China right now? The answer is possibly, but not without taking on considerable risk.
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The same can be said for Canada. Over the last six months the TSX has returned in excess of -12%. Are things cheaper than they were before? Certainly. Is the Canadian economy so healthy and discounted that it presents an irresistible opportunity to invest? Even the optimist would have to concede that’s unlikely. Falling oil, weakening banks, and declining manufacturing all speak for longer term problems that are yet to be resolved.
TSX last year highlight
In a past life when I worked for a mutual fund company I heard some smart advice about these types of situations. It involved corporate mergers, but is useful here. A particular fund would buy into companies that were merging but only after the merger was announced. Mergers are preceded by rumours which pump up share prices, and those gains can be huge. But it’s not until a merger has been announced and the plan outlined that the likelihood of the deal can be understood. The big jump in share prices represent opportunity but all the risk. They’d have missed the big money, but rather than gamble with money on the rumour of a merger that could be successful, they instead chose to bank the guaranteed gain between the time of the deal was announced and when it closed.
BRICs Trouble
There’s a lot of sadness underlying this photo…
This advice is good for investors generally as well, and is useful guidance when looking at distressed markets like we see today. Lots of markets have had significant sell offs. From the emerging markets to Europe and Canada returns over the past year have all been negative. But as people approach retirement it would make sense to not be to anticipatory of recoveries, and ensure that when we see market recoveries they are built on solid ground, that economic growth has secular reasons for occurring before running in and investing in discounted markets. It will not hurt investors to miss some of a gain in favour of a more certain perspective.
Let’s not squander this new year’s pessimism! Resist the temptation to chase last year’s losers, and be content to be a little pessimistic as our year takes shape.

Cities Are Hurting Your Retirement

The Economist endorses the Walker Report!

Well not really, but they have joined my cause on the problems we face with regards to urbanism and increasing urban density. It’s not everyday that you can say that the economist endorses your position (even if they don’t know it) but in early April my constant nagging about the insane price of housing became a feature for the weekly.

Most Expensive Cities In The World To Live In

How it felt when I saw The Economist article on wasted space in cities.
How it felt when I saw The Economist article on wasted space in cities.

If you haven’t been keeping up, I essentially have three big issues with homes in Canada:

  1. House prices are too high, especially in cities, which is driving a debt problem for many Canadians.
  2. Inflation in the housing market is likely creating a bubble, and considerable risk is building into the Canadian housing market as people over extend themselves.
  3. This problem is compounded by the need for city living. Increasingly people’s jobs depend on living in one of Canada’s big cities, where restrictions on development are aggrivating the situation.

Canada’s housing market is therefore a confusing and expensive mess. The risk is high but the need for housing is great and this fuels a great deal of arguments over how great the problem in Canadian housing really is.

The Economist’s take on this matter is an interesting one. It’s not just Canada that has an urban housing problem. Name a major urban centre and you are likely to see the same problem repeated. From Tokyo to London to New York and back to Vancouver urbanites everywhere are dealing with escalating home prices.Rising Property Prices

But the problem goes beyond merely being frustrated by increasing realty costs. Housing is a significant aspect to any economy. Building homes makes a lot of jobs, but affordable housing encourages a growing economy. As home prices eat up income there is simply less money to go around. It hurts domestic growth, slows trade and reduces standards of living.

The culprit is not a big bogeyman like the banks (though they are benefiting from this situation) but ourselves. In an effort to improve aesthetic standards of living by restricting changes to our surroundings we have unwittingly hurt our economic standard of living. Almost every city today is burdened with development guidelines and urban bylaws that restrict density and height. These rules run into the hundreds of pages and fill volumes in most city halls around the globe. It’s made cities like Bombay one of the most expensive in the world in a country that is one of the poorest. It restricts taxes and hinders economic and city improvements.

And cities need taxes. We tend to be critical of enormous budgetary outlays for cities, but whether it’s a new subway line in Toronto or a super-sewage pipe in Mexico City, cities depend on the taxes that are generated primarily through dense urbanization. This week the free newspaper Metro published an article showing which wards in the city of Toronto contribute the greatest amount in taxes. Unsurprisingly the “downtown” wards contributed the bulk of city revenue. Wards out in Scarborough had some of the lowest, a difference in the hundreds of millions of dollars for city revenue. Some are quick to point out that the “lie” about spoiled downtowners, but the reality is that density improves economic performance and reduces the burden of taxes while improving its efficiency.

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The Economist argues that we waste space in cities, and that comes with a high cost. According to their article the US economy is 13.4% smaller than it could have been in 2009, a total of $2 trillion. Because cities that offer high incomes (like San Francisco) become too expensive people endup working in lower productivity sectors, while making it difficult to live for those that choose to reside in those cities. In the case of Canada this potentially fueling an enormous and dangerous housing bubble while undermining our economic growth. But this is a problem of our own doing. Through our own efforts we have masterminded a situation that threatens our own economic well being. The question that remains is whether we can be clever enough to undo it before it hurts us all.

As for The Economist I will assume they should be calling me anytime to start writing for them regularly….

That phone call should be coming any minute now...
That phone call should be coming any minute now…

The Financial Challenges of Being a Young Canadian

Meanwhile, at Starbucks
Meanwhile, at Starbucks

It is a common enough trope that people do not save enough, either for retirement or just generally in life. We are a society awash in debt, with some estimates showing Canadians carrying an astonishing $27000 of non-mortgage debt and an average of three credit cards. This financial misalignment, between how much we spend (bad) and how much we save (good) is a source of not just economic angst, but denouncements of sinfulness and failings of moral behavior.

This isn’t an exclusively Canadian problem. Pretty much everyone across the developed world has been accused of both not saving enough and carrying too much debt, and the remedy is usually the same, save more and spend less. Underneath that simplistic advice is the nuance that goes into managing money; the importance of paying down debt, of saving some of what you earn on payday (so you don’t see it) and a host of other little things that define good money habits.

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This TTC Subway car is built in Thunder Bay. Because Toronto needs more subways, because it is a desirable, albeit expensive place to live.

But for young people trying to save and spend less they may find that the struggle is far greater than anticipated and the advice they are given can be frustrating in its obtuseness. For instance, one of the first solutions financial gurus give is “cut back on the lattes”. In one of our first articles we ever wrote was about the “Latte Effect”, (That Latte Makes You Look Poor) and how the math that underlies such advice, while not bad, isn’t going to fund a retirement.

In fact cutting costs is extremely difficult. Vox.com recently offered some advice for saving more. Pointing out that big ticket items are more useful in cost cutting than small items, the article made the improbable suggestion to “consider moving to a cheaper metropolitan area” if you are finding San Francisco or New York too expensive. Seriously. As though living in cities was a choice exclusively connected to cost, or that Minneapolis was simply New York with similar opportunities but cheaper.

In Canada this advice falls even flatter. While you can live many places, not all offer similar opportunities. Living in Windsor means (typically) making

As a financial advisor I am required to spit on the ground and curse when the subject of credit cards comes up.
As a financial advisor I am required to spit on the ground and curse when the subject of credit cards comes up.

cars. Thunder Bay offers both lumber production and a Bombardier plant. But if you are part of the 78% of Canadian GDP that is connected to the service sector, either through banking, finance, health services, government, retail, or high tech industries you are likely in one of four major cities, Toronto, Vancouver, Calgary or Montreal. It should be no surprise that young Canadians, facing ever increasing house prices haven’t actually abandoned major cities for “cheaper alternatives” since most of the jobs tend to be concentrated there.

full-leaf-tea-latteSo for young Canadians the challenge is quite clear. Cutting back on your expensive coffees could save you between $1000 – $2000 per year, but that won’t get you far in your retirement. Serious changes to costs of living are challenging since the biggest cost of living in cities is frequently paying for where you want to live. In between these extremes we can find some sound advice about budgeting and restraining what you spend, but it is fair to say that many young people aren’t saving because they enjoy spending their money, but because they don’t yet have enough money to cover their major costs and maintain a lifestyle that we generally aspire to.

It’s worth noting that most financial advice is pretty good and sensible, even things like watching how much you spend on coffee. Credit cards, lines of credit and overdrafts are all best avoided if possible. A solid budget that allows you to clearly see your spending habits won’t go amiss. And if you do choose to spend less on the small luxuries, it isn’t enough that the money stays in your purse or wallet. It must go somewhere so it can be both out of reach and working on your behalf or you risk spending it somewhere else.

At university and have no income? How about a credit card?
At university and have no income? How about a credit card?

But it is financially foolish to assume that people don’t want to save. The Globe and Mail recently ran a profile on the blogger “Mr. Money Mustache” – a man who retired at 30 with his wife and claims that the solution to retiring young is to wage an endless war on wasteful spending. And he means it. Reading his blog is like reading the mind of an engineer. From how he thinks about his food budget, to what cars you own, his advice is both sound and confounding. It might be best summed up as “live like your (great) grandparents”. Sound advice? Absolutely! Confounding? You bet, since the growth in the economy and our standard of living exists precisely because we don’t want to live like our grandparents.

There is no good solution or answer here. Young Canadians face a host of challenges on top of all the regular ones that get passed down. Raising a family and buying a home are complicated by financial peer pressure and inflated house prices. Choosing sensible strategies for saving money or paying down debt (or both) often means getting conflicting advice. And young Canadians have no assurances that incomes will rise faster than their costs, nor can they simply relax about money. They must be vigilant all the time and avoid financial pitfalls that are practically encouraged by the financial industry. Finding balance amidst all this is challenging, and young Canadians should be forgiven that they find today’s world more financially difficult than the generation previous.