According to a recent U.S. study from Northwestern Mutual Life Insurance, 25 per cent of Gen Z see the importance in having a financial plan and want to develop one.NoSystem images/iStockPhoto / Getty Images
Canada’s newest and youngest investors may have little in the way of investible assets, but they see the value in receiving professional financial advice, making them ideal future clients.
Generation Z, the oldest of whom are aged 18 to 25, are post-secondary students or in the early stages of their careers, so have not yet entered a life stage that comes with major financial obligations. Yet, according to a recent U.S. study from Northwestern Mutual Life Insurance Co., 25 per cent of Gen Z see the importance in having a financial plan and want to develop one. The pandemic and sluggish economy have reinforced the desire on Gen Z’s part to get started on the right financial path.
“Gen Z was the demographic with the highest probability of getting laid off during the pandemic, so they want to be smart about making decisions around their finances,” says Barbara Knoblach, financial planner and money coach at Money Coaches Canada in Edmonton.
Twenty-nine per cent of Canadians aged 15 to 24 are unemployed, according to May numbers from Statistics Canada. In comparison, the youth unemployment rate was 11 per cent a year ago.
Ms. Knoblach believes the pandemic has the potential to leave a huge impact on Gen Z and may turn them into lifelong savers as they worry about overall income stability. That’s similar to the philosophy of the “Greatest Generation,” a cohort that grew up during the Great Depression.
She says her talks with Gen Z are centred mainly on setting a budget, determining needs versus wants and managing cash flow, but may also include education on how to get started with investing and how rates of return work.
“I like Gen Z’s enthusiasm and flexibility to act on the advice I provide them,” she says. “Older people tend to be more stuck in a rut and may have more obstacles to overcome when adopting new behaviours around money.”
Ms. Knoblach meets Gen Z clients through their parents, who are also clients. She also offers lunch and learns at local post-secondary institutions and administers a Money Club Facebook group. During non-pandemic times, Money Club sessions are also held in person.
She finds this cohort to be more averse to debt than millennials, their older counterpart. She says they seem determined to learn from millennials’ mistakes of racking up more liabilities than necessary.
“It’s a priority for them to come out of post-secondary education with no or minimal student loans,” she says. “For this reason, many are not willing to commit to major purchases, which would come with taking on debt.”
Debt reluctance is also something Liz Schieck, a financial planner at Toronto-based New School of Finance, sees with her Gen Z clients.
“They have tempered expectations and tend to be more pragmatic on the end goal for their money,” she says. “Before committing to a purchase – even post-secondary education – they want to know, ‘How will this actually serve me? How will this help me in the future?’”
As for investment choices, Ms. Schieck finds Gen Z makes decisions based on their environmental and political beliefs rather than focusing strictly on rate of return. Because being socially conscious means different things to different people, she spends a lot of time with Gen Z clients figuring out where they want to invest and what they want to avoid.
“I hear constantly about specific industries and companies they don’t want to invest in,” she says. “They’re aware of all kind of things. For example, they may notice a company’s ownership structure is all men and want to know why there’s no women or people of colour on the board.”
Ms. Knoblach also receives many requests from members of Gen Z for investments that align with their ethics, which can be challenging to execute due to their limited money to invest.
“While they want to invest in a socially and environmentally responsible manner, unfortunately, many environmental social government investment products still require relatively high initial or recurring contributions,” she says.
Liam Moon, a 30-year-old insurance advisor at Neil & Associates in Grande Prairie, Alta., works with more established Gen Z clients employed in the oil and gas industry. He’s close in age to members of this generation and hs also worked in the same industry as his clients for several years. He appreciates their tech-savvy impulses of researching things ahead of time.
“They definitely come in with well-informed questions and ideas of what they’re looking to do,” he says.
Mr. Moon sees less interest among these clients in long-term plans for retirement, but a greater focus on short- to medium-term goals, such as travelling, purchasing a vehicle or saving for a down payment on a house. He says members of Gen Z prefer contributing to tax-free savings account – usually around $200 a month – as the money is more flexible and liquid so can be withdrawn more easily if needed.
He also encourages his Gen Z clients to consider acquiring disability or critical illness insurance now while they’re young and healthy as the premiums are more affordable.
As some are currently collecting the Canadian Emergency Response Benefit because they’ve been furloughed, Mr. Moon is advising them to reduce their budgets where possible and not to worry about investing for the time being.