Gen Y struggles to save

More than a third of Gen Y admit they struggle to save, finds research by TD Canada Trust.

Read: Advising Gen Y

The study finds today’s youth are more affected by common obstacles when it comes to saving compared to previous generations, including:

• Paying for education costs (44% of Gen Y vs. 18% of Boomers)
• Salaries too low to cover living expenses (39% of Gen Y vs. 30% of Boomers)
• Debts from credit cards, loans and lines of credit (38% of Gen Y vs. 26% of Boomers)
• The temptation to shop beyond their means (36% of Gen Y vs. 16% of Boomers)

“There is no question that the job market is tighter, university costs higher and salary growth lower for young people today,” says Raymond Chun, a senior vice president at TD Canada Trust.

Read: How to entice Gen Y prospects

This is why Gen Y should track cash flow and create a plan for saving and spending, he says. Individuals should set aside three to six months’ worth of essential expenses in an emergency fund.

Read: 4 ways to help Gen Y plan for retirement

Here are some additional tips.

• Be diligent. Consider putting away just $25 a week, and over the course of 12 months this will add up to $1,300.
• Budget. Assess spending habits starting with a list of all essential expenses like food, rent and transportation. Then review the list to see where you’re spending excessively. For example, food is essential but buying a bagel on the way to work is not. Whatever is left after the essentials, including servicing debt and saving for the future, is for discretionary spending.
• Service debt. The amount of debt people carry should not exceed 40% of their pre-tax monthly income. So if a young professional earns $3,000 a month, monthly mortgage repayments, student loans and other debts should not amount to more than $1,200. Young people with heavy debt loads should concentrate on paying down their highest interest rate debt, such as a credit card, before saving.
• Make it a habit. Put money away before there’s a chance to spend it. Set up a pre-authorized transfer to a high interest savings account.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.