Probably the last thing on the minds of young people working their first jobs or going to school is preparing for retirement.
But it would really benefit them if they could be convinced to start tucking money away for their future as early as possible. And while the “pay yourself first” catchphrase has been bandied about for decades, the philosophy is still a good one.
Neal Boyce, manager of wealth management at Crocus Credit Union, said the notion of kids not being prepared for their senior years is something that concerns him.
“I was taught by my parents to save and put money aside,” Boyce said. “Regardless of how little you have, set something aside, and then watch it grow.”
The benefit of compound interest is especially valuable over time — and the sooner money is invested, the greater the return will be.
Boyce said that if young people were able to set aside $50 a month and get six per cent interest on that amount, within 30 years they’d have almost $50,000. However, if they didn’t start saving until they were 40 years of age, and wanted to save $50,000 in 10 years, they’d have to invest $300 a month to achieve that goal.
“So how much easier is it now when they’re younger — and they have that magic of compounding — to save money?” Boyce said.
While a six per cent interest rate might not be easy to come by nowadays, if people are looking long-term, Boyce said mutual funds are a good investment, since they have more potential to earn better growth on a deposit.
Recent research indicates that millennials in particular are likely to start out with lower-paying jobs than the previous generation, and their employers might not offer a pension plan. And while it’s a tough pill to swallow, there’s no guarantee that the Canada Pension Plan and Old Age Security will exist 45 years down the road.
So Boyce suggested that, as he does with his own kids, parents should teach their children to take charge of their own future financial security.
“As they’re getting older, like teenagers getting their first jobs, I really encourage parents to get the kids to set aside money somewhere where there is potential for growth, whether it be through an RRSP or a tax-free savings account,” Boyce said. “Young adults … get an immediate tax deduction for their contributions, so there’s always that little bonus with an RRSP.”
Source: The Brandon Sun