All posts by Financial Independence Hub

Gen Z and beyond leaning on debit to spend in times of economic uncertainty

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By William Keliehor, Interac Corp.

Special to Financial Independence Hub

Gen Z Concerns

Generation Z (Gen Z) is feeling the brunt of economic uncertainty in Canada as they enter the workforce and take on a whole host of financial ‘firsts’ – such as paying rent, saving for a vacation and purchasing groceries. More than any other generation, Gen Z is more likely to feel stressed (42 per cent), anxious (37 per cent), and overwhelmed (31 per cent), according to new research from Interac Corp.

Inflation is one of many factors serving as a hurdle for Gen Z and Canadians alike in their ability to stay on top of their money. In fact, 78 per cent of Gen Z respondents agree inflation and everyday essentials (75 per cent) are two external causes throwing a wrench in their ability to manage their finances.

Leaning on Interac Debit and Interac e-Transfer

Canadians will likely continue to contend with inflationary pressures for many months to come and it’s critical they’re equipped with tools that can help them stay in control.

Building healthy money habits such as creating a budget and using your own money are two ways to help navigate personal finances amid the current economic landscape. We’re hearing that Gen Z is doing just that – leaning on debit to take charge of their finances. Gen Z told us they are more likely (70 per cent) to frequently use debit, compared to 55 per cent of non-Gen Z Canadians polled in the Interac survey.

From the survey findings, we discovered that nearly half of Gen Z say they prefer to spend with debit so they’re only spending the money they have. Gen Z also told Interac that they feel more in control of their spending when using debit (46 per cent) and half of this generation of debit users (50 per cent) also say it’s easier to track their spending when using debit versus credit.

While there are many external factors that make it difficult to manage your finances, there are tools to help you stay in control of your day-to-day spending. For example, making Interac Debit the default payment in your mobile wallet or merchant app can help you spend the money you have in your account. Using debit for essential purchases can also help you stay on track and build good financial habits.

Canadians can also take charge of their financial well-being by using Interac e-Transfer to pay instantly or to split costs with others, making shared experiences more affordable and easier to track. This is a trend we began to see last year, as Interac e-Transfer hit one billion transactions. We’re seeing that Gen Z continues to rely on this tool, with nearly eight in ten (78 per cent) saying Interac e-Transfer is the simplest way for them to split costs so they can still get the most out of life and spend the money they have.

Essential spending continues

In times of uncertainty, debit remains an important and empowering tool, helping all generations across Canada stay in charge of their finances. While we’ve seen Canadians react to inflation and shift their spending accordingly, essential spending has continued. Canadians continue to spend the money they actually have in their accounts, as evidenced by year-over-year growth in Interac Debit (5 per cent) and Interac e-Transfer (11 per cent) volumes.

Additionally, year-over-year, Interac transaction data shows an increase in the number of transactions with InteracDebit at grocery stores and supermarkets as average basket sizes have decreased. Continue Reading…

Social Media Side Gigs: How Students are Using Social Media for Financial Freedom

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Unsplash

By Beau Peters

Special to Financial Independence Hub

Financial freedom can feel like a pipe dream when you’re in college. You hardly have enough time to complete all of your assignments, let alone work a full-time job and earn enough income to complete all of your financial goals.

That said, there are more jobs that exist online that can help you become financially independent, thanks to the digital age. As a native user of social media, you can find plenty of paid opportunities as an influencer, social media manager, or crafter of homemade goods.

A social-media side gig is great for your long-term career goals, too. You’ll always have employable skills to rely on and can point towards a portfolio of profitable, engaging social media content.

Influencer

If you’re a traditional student, you’re likely a native user of social media platforms like TikTok and Instagram. You may have even built a significant following of friends and strangers who also use the platforms you love. Becoming a brand ambassador or influencer can help you monetize your account and earn extra income through product profiles and branded content.

Start earning money on Instagram by switching your account to “creator mode” and connecting your account with affiliate programs. With the help of these programs, you can link to businesses and brands from across the globe  like:

  • Amazon Associates
  • eBay Partner Network
  • CJ Affiliate by Conversant
  • Rakuten Marketing

These platforms can connect you with brands that align with your values and overall aesthetic. You will need to adhere to their specific rules and guidelines, though, as ill-thought-out influencer marketing can derail a brand’s overall marketing strategy.

If you have a large enough following, you can also get paid directly via sponsored posts. Sponsored posts need to be clearly tagged to stay within Instagram’s rules, but they can be a great way to earn extra income. Improve the effectiveness of sponsored posts by utilizing strategized hashtags and interesting captions that draw users in.

Social Media Manager

The role of a Social Media Manager is to oversee posts, engagement, and branded content that goes live on a business’s social media accounts. Social media managers typically have a flair for analytics and aesthetics, as they know how to blend brand guidelines with audience trends and consumer data.

This may sound like a full-time gig, but you can balance your college work with social media management for small businesses. As a native user of social media sites, you already know the current trends and how to blend branded content with videos and images that inspire your audience. Continue Reading…

Why the 4% rule is actually (still) a decent rule of thumb

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

I’m not a huge listener to podcasts but I do enjoy them from time to time …

A few years back, I listened to a BiggerPockets Podcast with financial independence enthusiast, U.S. financial planner, commentator and educator Michael Kitces as a guest.

This podcast delved into the 4% safe withdrawal rate that so many, many, many….DIY investors in the early retirement community rely on and why Michael Kitces ultimately believes the 4% rule actually remains a very good rule of thumb to plan by – to a point. 

If you don’t have an hour and 22 minutes to listen to this episode (not many people do…) then no worries, I’ve captured the essence of the interview below.

In this updated post (with some new links), I share my own thinking on this subject and why I won’t use the 4% rule myself for any detailed planning work for us.

Could the 4% rule remain a decent rule of thumb?

In general terms, the “4% rule” says that you can withdraw “safely” 4% of your savings each year (and increase it every year by the rate of inflation) from the time you retire and have a very high probability you’ll never run out of money.

Some things to keep in mind when you read this:

  1. This ‘rule’ originated from a paper written in the mid-1990s by a financial planner in the U.S. who looked at rolling 30-year periods of a 50% equity/50% fixed income asset allocation. His name was Bill Bengen.

4% rule

2. This rule was developed almost 30 years ago. A lot has changed since then including real returns from bonds. There are also products on the market now that allow investors to diversify far beyond the mix of large-cap U.S. stocks and treasuries the Bengen study was based on.

3. The study was designed to answer the question: “How much can I safely withdraw from my retirement savings each year and have my nest egg last for the duration of my retirement?” Little else.

4. The study assumed (at the time) most retirees would retire around age 60. Therefore, a “good retirement” would be ~30 years thereafter; what is the safe withdrawal rate to make it through retirement until death.

5. The rule takes none of the following into account:

  • Will you (or your spouse) have a defined benefit pension plan?
  • Do you expect to receive an inheritance?
  • Will you downsize your home?
  • Do you have a shortened life expectancy or health issues that should be considered?
  • Will you continue to earn some form of income in your senior years?
  • And the list of what ifs goes on and on and on …

My 4% rule example

My wife and I aspire to have a paid off condo AND own > $1M personal portfolio to start semi-retirement with. We hope those days are near. We’ve always considered the 4% rule a decent starting point for our portfolio drawdown ideas but that’s where it ends for us.

Using that desired investment value, if we can grow our portfolio to over $1M, the 4% rule tells us we could expect to withdraw about 4% of that million-dollar nest egg ($40,000 per year indexed to inflation) and have virtually no concerns we would run out of money for the next 30 years (early 80s).

But just living off dividends or distributions (which is about 4% of our portfolio yield) doesn’t make much sense in perpetuity. I’ll come back to that point in a bit.

To the podcast and some takeaways!

On the subject of a 4% withdrawal rate – is that conservative?

Michael: Yes. If your time horizon is 30-years, it probably is. Because, when Bengen looked at his different rolling periods … he found the worst case scenario was a withdrawal rate of about 4.15%. “It was the one rate that worked in the worst historical market sequence…”.

Does recent data say anything different since the 1994 study?

Michael: Not really. Michael and his team replicated the Bengen study and generally arrived at the same number. And that’s not the only good news … 50% of the time using the 4% rule you will as Michael puts it “double your wealth.”

So, 50% of the time (market returns willing) you will finish with almost X3 wealth on top of a lifetime of spending using the 4% rule.

“…the reality remains that by withdrawing at “only” a 4% initial withdrawal rate, the overwhelming majority of the time retirees just finish with a massive excess amount of assets left over!”

4% rule Kitces

Check out the outstanding Michael Kitces study on the 4% withdrawal rule – that shows the extraordinary upside potential in sequence of return risk.

From that post:

“…taking even “just” a 5% initial withdrawal rate (and adjusting spending for inflation in each subsequent year) actually runs out of money in nearly 25% of historical scenarios… even though a higher 5.4% withdrawal rate “worked” when projecting the lowest 30-year average returns in history!”

What if you retire at the worst possible time? Example, on the eve of the 2008-2009 financial crisis?

Michael: Doesn’t matter. 4% worked. Thanks to a massive bull run for the 10 years that followed, as bad as the 2008-2009 financial crisis was, you were still trending far ahead. Continue Reading…

Millennials and Gen Z struggling with debt but open to finding solutions

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BDO Affordability Index Spring 2023 (CNW Group/BDO Canada LLC)

By Jennifer McCracken, BDO

Special to Financial Independence Hub

The cost of living has spiked significantly in the past year and Canadians across the country are feeling the pinch. Younger Canadians between the ages of 18 and 34 are particularly affected, having not had the chance to build up as much savings as older generations.

BDO’s newest Affordability Index shows that 45% of young Canadians say their debt load is overwhelming and they’re unsure how to tackle the problem. That’s higher than those between the ages of 35 to 54, where 39% say they’re in that situation and significantly larger than the 13% of Canadians between the ages of 55+ who feel the same.

Credit-card debt appears to be the main reason younger Millennials and Gen Z are falling behind, with 37% of 18-34 year olds saying this form of debt causes them the most stress. Mortgage debt and student debt were the next closest reasons, with 22% for the former and 21% the latter.

What are Canadians doing to cope with inflation and rising debt?

It’s not surprising then that 49% of younger Canadians say they’re reducing their living expenses to cope with inflation and the high cost of living, while 32% say they’re lowering how much they contribute to savings as well.

While younger Canadians may be struggling more than their older counterparts, they’re also more open minded when it comes to finding solutions.

The Affordability Index indicates that younger generations are much more willing to look for new streams of revenue compared to older ones. Some 24% say they are adding part-time work to keep up with inflation, compared to just 13% of 35-54-year-olds and only 5% of those 55 or older.

Young Millennials and Gen Z would also find side hustles and gig work to increase their income. Of those doing this, 35% said it was to help them pay for essentials and 27% say it’s to help them pay down debt.

It’s not just part-time and gig work that younger Canadians are using to fight inflation, they’re also looking for higher paying jobs. A total of 13% say they’ve recently found a new full-time job in response to the affordability crisis. That’s compared to just 7% of those aged between 35-54 and only 1% of those 55 and older.

However, while younger generations are keen to seek out new ways to increase their income, they’re very unfamiliar with many of the most common debt relief options available.

A lot of people just don’t know what their debt relief options are  …

Only 19% of them said they were familiar with the idea of bankruptcy, 11% said they know what a debt management plan is and 9% with a debt consolidation loan. Continue Reading…

The Value of Advice

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By John DeGoey, CIM, CFP

Special to the Financial Independence Hub

Over the past few years, there have been dozens of articles in magazines that are distributed to financial advisors about both the value and cost of financial advice.

Most are overly simplistic to the point of being inaccurate and downright misleading.  As you might imagine, any publication that caters to financial advisors will have a decidedly pro-advisor editorial perspective.  That’s all fine and well, but there are nuances that are glossed over too frequently that cause some observers to worry about the soundness of financial advice echo chamber that many advisors seem to live in.

Since I’m an advisor myself, it should be obvious that I am a strong proponent of quality financial advice.  The concern that I have is that within my own industry, the financial media has taken that perspective a step further and is moving toward boosterism that is almost jingoistic.  There are two things that the ‘for advisors only’ media seems to gloss over.  In both instances, the short shrift is because a more fulsome discussion might be awkward for certain elements of the industry.

The two things “Advisors Only” media gloss over

The two issues are:

1.) The distinction between good advice and bad advice. This is admittedly subjective, but the media doesn’t ever seem to venture into making a distinction because it seems unwilling to alienate a segment of the advisor population.  Surely to goodness, not all advice is good advice and not all advisors are good advisors.

2.) The ongoing focus on the cost and value of advice while simultaneously and conspicuously remaining silent on the cost and value of investment products. Clients pay for both advice and products, so why explore one aspect ad nauseum while saying almost nothing about the other?

Let’s begin by looking at the touchy subject of what constitutes good advice in the first place.  Obviously, there is no single best set of answers to this matter.  Continue Reading…