Ask someone under 35 what their financial goals are and they will likely be the same as yours, your parents and your grandparents, own a home, have some money put a way for retirement and probably travel.
Check their feelings about how they will get there and you may get a sense of how increasingly bleak the outlook can be for younger Canadians and personal finances.
An overheated housing market, rising interest rates, and now something many younger Canadians have never experienced–soaring inflation–are top of mind for those who have a lot of their working future ahead.
Brad Simpson, chief wealth strategist with TD Wealth, says many younger Canadians are indeed worried about today’s new-fangled inflation. He says they have real concerns about being able to save for their future, or simply having enough for a down payment on a home.
“It comes from very ominous terms because when you’re sitting around the dinner table talking about it, it really sounds quite frightening,” says Simpson. He adds many younger Canadians have never really experienced an economic climate like this.
“If you’re 35 or younger there’s going to be a huge bias toward a real concern about it,” says Simpson.
His work with a large organization managing people’s investments lets him tap into what drives investor decision-making and how each reacts to tough economic conditions.
Rising costs top list
According to the 2022 TD Wealth Survey, surging inflation topped the list of personal finance concerns for 87 percent of Canadians, followed closely by the cost of living, at 84 percent.
Canadians under the age of 35 were significantly more likely than older respondents to be concerned about housing prices (80 percent vs. 54 percent) and rising interest rates (71 percent vs. 49 percent).
Simpson says one interesting find was just how many people aged 35 or younger were concerned about what inflation meant to their investments. He says that carries its own irony when factoring what inflation actually means to older Canadians.
Simpson points to huge shifts in equity markets as a good indicator of what is at risk for older Canadians who are increasingly looking to adapt to the current market.
“The age groups looking at retirement, much of their portfolio goes into preservation mode and wanting to protect capital and that means a lot of their investment portfolio goes into government bonds,” says Simpson. He believes retirees and near-retirees face an environment where parts of their portfolio are down anywhere from five to fifteen percent.
Due to rising inflation, nearly six-in-ten Canadian investors (56 percent) have had to re-visit their investment strategy. Almost the same amount said they regret not starting to invest at an earlier age, according to the TD Wealth Survey.
Going on vacation is the top overall financial goal and priority for Canadians post-pandemic (19 percent), primarily among those over the age of 35 with more investable assets. However, that’s not the case for people with other personal finance concerns like paying down debt.
Paying down debt was the second-highest priority for Canadians (at 18 percent), followed by investing or trading in the stock market to generate more income (16 percent).
For those under the age of 35, the top priority was still saving for a down payment on a home.
End of an era?
It is new territory for younger investors. Simpson recalls long periods of economic expansion bookending the 2008 Great Recession, which technically only lasted six months. Growth in global markets continued through 2019, or what Simpson more easily described as “an incredibly long business cycle.”
“What we have seen the last two years is the full economic cycle in 22 months, and so we have gone from early-stage to mid-stage, to late-stage,” says Simpson. “So, how we’re making decisions and how this environment looks right now, this is a late stage economic environment.”
Simpson says the global pandemic coupled with the largest military activity in Europe since the Second World War and subsequent inflation have raised the question that we might be at the end of the era of globalization.
For those concerned about how to invest in today’s market climate, Simpson likens it to a game of economic foursquare, with ever-moving feet across both rising and falling inflation and growth environments.
“We’re building investment portfolios with people in the middle of this reality that we run through–kind of four different economic cycles at all times, on the margins, making allocations based on that.”
Careful maneuvering
TD anticipates inflation will slow under the weight of higher interest rates and improved supply chains, though it expects it to remain on the high side into 2023.
Beata Caranci, a Chief Economist with TD Bank Group, noted on release of the Wealth Survey that Canadian households should be prepared for an economic phase marked by higher interest rates and higher inflation.
“However, this is also the phase of the business cycle that requires precision–and a little luck–from the central bank as they try to orchestrate a soft landing,” she stated.
“Without a doubt, there is uniqueness that we’re experiencing right now,” said Simpson.
Tyler Mclean is a reporter with Huddle, an Acadia Broadcasting content partner.
