Here is the answer to this week’s reader question:

“I’m in my 20s. How much should I have saved by now?”

—Axel

Get your question featured in The Get. Send it to TheGet@neofinancial.com.

Should Canadians in their 20s prioritize saving? How much should they save? 

The short answer: There isn’t a specific number or benchmark you need to achieve. It’s really about embracing a savings mindset. 

Young adults in Canada today face a lot of money issues their parents never did. Now, the minute you turn 18 years old, many safety nets disappear and you may get access to credit cards you can tap with, day-trading accounts and gaming apps (depending on your province)—and you learn from finfluencers. You see all these things before likely ever being given proper financial lessons on how to manage short-term versus long-term money issues.

Financial risks for young Canadians

Your generation is the first one in Canada to grow up with tap technology. Earlier generations would see their parents take money out of the bank and then watch them physically hand over bills at the grocery store. There was a physical relationship with money, and that created an understanding of the cost of things. You don’t have that today, as many parents of people your age use digitized tap technology and delivery.

Today, there seems to be less aversion to losing money and access to immediate gratification is just a few taps away on your phone. That’s not to say getting into credit card debt or hurting your credit score in your 20s is unique to your generation, but the risk of getting yourself into trouble is exponentially higher. Having all these tools on your phone is like being handed the keys to a Ferrari without taking driving lessons. This is why learning important money skills, even before you reach your 20s, is so important. Those skills don’t necessarily include determining a dollar amount you need to save. Any amount you can manage is great. It’s about practising the habit of making money, putting some away and living with what is left over. This is the best loop to engrain. 

You need to be very aware of your personal risk tolerance. Young Canadians are often interested in being educated in finance matters, which is great, but they get their financial education from different sources than the ones previous generations relied on. It can sometimes come from teachers or parents, but these days it could also come from social media and finfluencers.

Some influential content creators are really adept at promoting make-money-fast ideas that can normalize levels of risk that are inappropriate for most people. So, it’s critical you ensure your sources are legitimate and are not steering you into risky investment ideas that don’t suit your tolerance or goals.

What 20-somethings want from life and money

Savings are important because the reality is that tomorrow is going to happen and life will always cost money. Canadians in their 20s may have a hard time envisioning eventually owning a house or being retired, especially in today’s economy. And who knows where you will be in 10, 20 or 30 years? But you will turn 30 and then 40, and you will need money. You don’t want to live paycheque to paycheque.

In my experience talking to and working with young adults in their 20s, their goal isn’t really “get rich.” It’s more about work-life balance and having less day-to-day stress about money and affordability. Over the 20 years I have been on the front line of financial planning, I have seen that long-term work-life balance can only be achieved if you keep your lifestyle costs low (live within your means), maintain diversified income sources and grow your emergency savings. The rest will fall into place.

The need for an emergency savings fund

Having emergency savings means the effects of the gig economy, a pivot in your job or taking time out of work don’t scare you. Life is unpredictable, and we all sometimes get lemons thrown our way. No matter what the world looks like 20 years from now, there will be ups and downs and you want options to deal with them. You want options, not stress.

Saving even small amounts in your 20s can add up to significant amounts as you get older. The economy might be much more favourable in 10 or 20 years than it is now. Maybe you’ll work your way up into a much higher paying job. And having a bit of savings on the side opens up a world of options to travel or try a new career path, whereas a pessimistic outlook and a “throw caution to the wind” attitude only ensures more stress and less freedom to make life changes.

For sure, it’s not easy with all the short-term temptations at your fingertips, but developing the right financial habits and mindfulness toward savings will really help you reach your goals down the road. It’s not how much you decide to save in your 20s, as long as you start saving.

—Shannon Lee Simmons, CFP
Author of Making Bank: Money Skills for Real Life and founder of the award-winning New School of Finance

As told to Paul Saunders

Paul Saunders is a Toronto-based marketing consultant and writer with over 20 years’ experience in the Canadian investment industry.

Read more from this issue of The Get:

1. The costs of not paying your minimum credit card payment
2. MVP: Husein Rahemtulla on working for himself at 25
3. Santa’s shortlist: The buzziest toys in Canada this year
4. True or False: I need a university degree to become wealthy

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