Planning for the unknown is a running trend for many generations who continue to face economic uncertainty. These days, if it’s not a global pandemic, it’s an unstable job market — and many millennials are starting to feel the pressure financially. In a recent report, Financial Literacy vs. Financial Sufficiency, data reveals that 22% of Canadians are having real financial problems and feel as though they are falling behind with bills or credit commitments. For millennials, specifically, 69% admit that they worry about money daily.
So, as we begin to head into 2021, what financial priorities make the most sense? The data and statistics might surprise you. While building an emergency fund or finding stable employment may be hot topics, the real priorities for millennials include finding permanence and stability – and not in the most obvious ways. While financial priorities may be shifting, financial planning for millennials is rooted in basic money management and smart goal planning.
Financial priorities of millennials shaped by stress and desire
First of all, let’s get serious about who millennials are. Millennials are now the largest generation in Canada, amassing 27% of our population. As of 2020, the millennial cohort includes anyone between the ages of 25 and 29.
Although this cohort boasts the highest percentage of formally educated people, millennials aren’t as quick to build financial security as previous generations. Initial explanations tried to show how millennials, on the whole, earned less than prior generations, but data from Statistics Canada proves otherwise. The StatsCan study shows that millennials earn more at each age when compared to their generational counterparts, at the same age. For instance, in 2016, the average income for a millennial was $44,093, while the average income for Gen X (ages 40 to 54) was $33,276, and for Baby Boomers (ages 55 to 74) was $33,350.
What we earn is only half the story for millennial financial planning. Data shows that while millennials earn more, on average, this cohort is also in a lot more debt. The leading causes of debt are unsurprising: education and housing. According to a Credit Karma study, nearly 15% of millennials have student loan debt that hovers around $18,000. As for mortgage debt, the median mortgage for millennials in 2016 was $218,000 – which is more than double the average annual income for this age group. In other words, despite earning more, financial security doesn’t come easy to millennials.
Millennial priorities impacted by financial stress
It can be difficult to stay on top of your financial goals without having the added stress of a global pandemic looming. An FP Canada survey found that, unsurprisingly, money is the number one cause of stress for Canadians.
With COVID-19 causing financial difficulty across the country, 78% of Canadians would run out of money within 90 days (and 57% of these people would run out of money in 60 days), if they lost their job today. What’s worse is that the percentage of millennials reporting possible financial hardship is even higher. According to data from the recent Financial Literacy vs. Financial Sufficiency report, 82% of millennials (those between 25 and 39-years-of-age) would run out of money in less than 90 days.
Not surprising, then, is how millennials are prioritizing their financial goals for 2021. According to the data, the top three financial priorities for millennials in 2021 are:
- Paying off debt;
- Saving for a down payment on a home; and
- Increasing their income.
Why are millennials still prioritizing housing in a pandemic?
It doesn’t take a math whiz or philosophy major to see that paying off debt and buying (an expensive!) home appears counterintuitive. Dive into the data and we learn that the reasons millennials prioritize these goals is because financial well-being is more than just earning and saving.
Jasmine Shaw, a 26-year-old living in Ottawa, (and 22% of millennials) say that it’s all owning a home is all about stability. “The pandemic has revealed how important that is to me and my well-being.”
For 25-year-old Ontario resident, Samantha Woodcroft, her main motive for wanting to buy a home is to stop paying her landlords’ mortgage. “I’m hoping that prices will lower in 2021,” says Woodcroft, who is now waiting to hear back from her broker with a savings plan to get her and her partner on track.
How COVID-19 impacted millennials financially
Overall, each generation faced a big financial hit because of COVID-19. But, that doesn’t mean that money stress or a decrease in income has made Canadians want to stop saving for their more sizable financial goals.
Before the pandemic, three-quarters of Canadians (75%) were saving for a down payment on a home. That number has only slightly decreased to 71% of people still focusing on saving to buy their own property. But why? Again, we go back to the strong desire for stability and permanence that has heightened since the start of the pandemic.
Although there are financial stressors and difficulties across the board, the majority of Canadians are still doing everything they can to stay on track with their savings goals. If you’re one of the 70% looking to finish off their down payment fund, we have a few key money management tips to help you accomplish your goal.
How to create a financial plan using money management tips for the New Year
If you are looking to develop a list of money goals as we head toward the New Year, it’s not a bad idea to consider what you are currently doing to achieve your desired goal. Financial security looks different to each person, and luckily, there are enough money management tips to create your ideal lifestyle. Here are four money management tips for millennial financial planning in 2021.
#1. Look at where you stand right now
The first step is to take a deep dive into your current financial situation. Where do you stand right now? Get to know your monthly income and expenses to see if you are living within your means. From there, write down all of your recurring bills and take inventory of any outstanding debts. Once you know how much you have leftover at the end of each month, consider setting up automatic payments or transfers to make additional payments to your debts or add to a savings account for the goals you hope to accomplish in 2021.
#2. Review your past year of spending
If that doesn’t feel like a thorough enough review, it’s always helpful to review your past year. Look at where your money came from and where it went depending on the time of year. For instance, did you spend more in the winter months or the summer months? Now is an excellent time to create a budget that reflects these habits.
#3. Budget accordingly
According to report data, 87% of Canadians have a budget, which is fantastic. The catch? Only 30% stay within their budget. So, now might be the perfect time to make some adjustments. The best thing about budgeting is that there are various options available for you to try out. From zero-based budgeting, where every cost is analyzed based on need, to a cash-based budgeting system where you avoid credit and debit cards and limit yourself to a certain amount each month – the options are endless. The critical thing to remember is that it needs to work for you.
#4. Create a plan for your goals
The best way to successfully tackle a financial goal is by creating a realistic plan before you jump in. If you’re unsure where to start, run through your goal to measure it up to a SMART goal.
SMART goals are:
- and have a Timeline.
Create an estimate for how much you’d need to save to achieve your goal and set up an automatic transfer that works with your budget.
Ultimately, if you are already setting plans in motion to create financial priorities, it’s likely that you are on the right track towards achieving those goals. But, to accomplish them promptly, it’s best to follow some simple money management tips and make a plan that you can stick with no matter what ups and downs may come through the New Year.
The survey data used for the Zolo Financial Literacy vs. Financial Sufficiency 2020 Report was collected through an online survey between September 19 to October 12, 2020.
The online survey asked 6,651 respondents a variety of opinion, self-report and knowledge-based questions in order to measure financial knowledge, confidence and skills — all of which are integral to financial literacy.
The estimated margin of error is +/- 1.59 percentage points, 19.8 times out of 20.