Many are eschewing the traditional life path of getting a job, saving for a mortgage, working until 65 and then retiring in favour of a much more adaptable approach that prioritizes enjoying life and downplays homeownership as a financial priority, while saving a bit for the future.unknown/Getty Images/iStockphoto
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Younger Canadians may be embracing a softer approach to personal finance that prioritizes a comfortable lifestyle today over socking away savings for the long term.
It’s a mindset that some advisors say is rooted in a worsening affordability crisis that has hit young people particularly hard. But they’re telling young clients there’s still value in saving, even if the amount is small.
A majority of Generation Z investors said they’re focusing on living a life of fulfilment now because the future feels too uncertain to plan for far-away goals, according to an Intuit Inc. study from 2023 that dubbed the approach a “soft saving” movement.
The study surveyed roughly 2,000 U.S. and 1,500 Canadian residents and deliberately oversampled Gen Z survey participants. It found almost three-quarters of Gen Z survey participants said the current economy makes them hesitant to set long-term goals compared to 63 per cent of the general population. Two in three believe they’ll never have enough money to retire, versus 58 per cent of the general population.
Instead, the survey found both Gen Z and millennials expressed more interest in having money to pursue their passions and hobbies and to make non-essential purchases than older demographics. Almost three-quarters of Gen Z survey participants said they’d rather have a higher quality of life than extra money in the bank.
“I don’t know that [soft saving] is a mindset so much as it’s not a choice,” says Shannon Lee Simmons, certified financial planner (CFP) and founder of The New School of Finance in Toronto.
Ms. Lee Simmons says she often hears from young clients about not having enough money to manage day-to-day expenses, put money into an emergency fund and save for the future. Forced with the choice between risking credit card debt in the event of an unexpected near-term expense and putting money in a registered retirement savings plan (RRSP), many understandably prioritize the present.
“Young people, maybe, embraced that and are making peace with it [and think], ‘I’m just going to focus on what I can control and let that [long-term saving] piece go, instead of feeling anxious and terrified every time I’m not doing it,’” she says.
“It’s not like anyone comes to me and says, ‘I don’t ever want to save for the long-term.’”
Moving away from the traditional life path
Ms. Lee Simmons also viewed Gen Z survey participants’ assertions about never being able to retire through a different lens. For previous generations, retiring at 60 gave someone a roughly 10 to 15-year retirement. But with Canadians living longer, people need to save for a retirement that could stretch up to 30 years or more.
She’s had conversations with Gen X and older millennial clients about planning to work in some capacity into their mid to late 70s, and says members of Gen Z are just being realistic about an inability to save for such an extended retirement.
“One of the ways I’ve been doing financial planning for a long time is, instead of a long 30-year game plan … it’s a little bit more of enjoying things now, assuming you’re working for longer and being okay with that,” she says.
Andrea Thompson, CFP and founder of Modern Cents in Toronto, says she sees the soft saving trend as similar to a changing mentality among some of her clients.
Many are eschewing the traditional life path of getting a job, saving for a mortgage, working until 65 and then retiring in favour of a “much more adaptable” approach that prioritizes enjoying life and downplays homeownership as a financial priority, while saving a bit for the future.
Ms. Thompson notes this mindset shift among her clients, who range in age between late 20s and mid-life, isn’t due to affordability challenges, and many are still contributing to their savings.
“What people are doing instead is looking toward fulfilling what they want to do first rather than prioritizing a certain income level that they’re trying to generate,” she says.
Her advice, particularly for younger clients, has shifted as a result. While she used to stress saving heavily while clients were young, particularly given the benefit of compound interest, “now, I’m much more like, ‘Save but enjoy your life.’”
Ms. Thompson says she’s seeing some clients save more in their tax-free savings account (TFSA) than in an RRSP, given the TFSA’s flexibility, but that has, in some cases, led to them to treat it more like a bank account than an investment account.
‘Life is going to cost something’
Meghan MacPherson, associate financial planner and investment representative at Impact Financial Group Inc. in St. Catharines, Ont., whose target client base is between ages 25 and 40, says that while she has not yet had any clients expressing a similar sentiment, she plans to stress the importance of building a savings habit if it comes up in conversation.
“You don’t have to be at your target savings level right away. It’s about making small steps forward,” she says.
Ms. MacPherson says identifying minor changes to someone’s budget that could free up a little bit of money to save, as well as setting milestones or checkpoints for clients – even as simple as increasing savings by a percentage or two in the next year – can also be motivating.
“If you’re doing that each year, you’re slowly increasing your contributions but not noticing the impact,” she says.
Ms. Thompson also notes that depending on clients’ income level, saving can be beneficial just from a tax planning perspective, even if they don’t have goals they’re saving toward.
Ms. Lee Simmons notes that saving, whether $10 or $1,000, creates a sense of control and safety. She says that’s her advice to clients in their 20s who feel uncertain about planning for a future that could be reshaped radically by the climate crisis or future economic turbulence.
“No matter what happens in 30 years, life is going to cost something,” she says.
In the face of uncertainty “the act of saving, even if you spend it eventually, is hopeful,” she says. “It’s a mindful act of hope every time you put money into a savings account.”
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