Millennials and Savings: Were Their Parents Example Enough?

Blog By

Chuck Seguin

As Canadian millennials (born between 1981 and 1996) progress in their careers, their approach to saving and investing is creating notable shifts in the Canadian financial landscape. This generation, shaped by unique economic circumstances, often prioritizes different financial goals than their parents, like investing in experiences and exploring alternative investments like cryptocurrency. Yet, some of these choices, while innovative, can present risks that may not align with long-term financial stability. This article explores the saving habits of Canadian millennials, their goals, and why more traditional financial products such as segregated funds can offer security and growth.

Canadian Millennials’ Saving Habits: Priorities and Financial Goals

Millennials in Canada save at varying rates, with many balancing financial security and lifestyle flexibility. BMO Newsroom with its collection of articles reported that 68% of Canadian millennials prioritize saving, with goals including home ownership, retirement, and emergency funds. Here’s a look at what’s driving their saving behaviors.

1. Financial Security and Experiences

Unlike previous generations who prioritized home ownership earlier in life, Canadian millennials are spending more on travel and social experiences, despite the high cost of living in Canadian cities. According to Statistics Canada and its body of knowledge, millennials are more likely to save for experiences like travel, reflecting a generational shift in priorities. However, financial security is not neglected; many millennials are wary of economic instability and prioritize building emergency funds and other savings buffers.

2. Home Ownership Challenges and Aspirations

The goal of home ownership remains strong among Canadian millennials, even as property prices in urban areas like Toronto and Vancouver surge. According to the Canadian Real Estate Association (CREA), property values have skyrocketed over the past two decades, posing challenges for first-time buyers. Despite these barriers, a 2022 RBC survey found that 62% of millennials still aim to own a home, even if it means saving longer or purchasing outside major city centers.

3. Retirement Savings and Long-Term Financial Health

Canadian millennials, often perceived as less retirement-focused, are indeed preparing for the future, with a survey by Scotiabank indicating that 72% contribute to retirement savings accounts like RRSPs and TFSAs. Unlike their parents, who may have relied heavily on employer pensions, millennials often prioritize diversified retirement plans and alternative investments for long-term growth.

Canadian Millennials on Wealth and Investments: Seeking Alternatives

Millennials are experimenting with a range of investments to build wealth, including a notable interest in cryptocurrency. However, many traditional financial experts urge caution when it comes to crypto due to its volatility compared to safer, regulated options like mutual funds and segregated funds.

1. Cryptocurrency Craze and Its Risks

Cryptocurrency is appealing to Canadian millennials, with a Fintech Times report indicating that over 30% of young Canadians have invested in crypto. For many, crypto represents an innovative, decentralized investment option with potential for high returns. Yet, cryptocurrency remains highly volatile. In 2022 alone, Bitcoin’s price fluctuated between CAD $47,000 and CAD $17,000, underscoring the inherent risks of investing heavily in these assets.

2. The Need for Caution: Comparing Crypto to Mutual Funds

Millennials may be enticed by crypto’s fast returns, but it’s essential to understand the trade-offs compared to traditional investment options. Mutual funds have been popular among Canadians for decades, offering diversified exposure to different sectors and steady returns over time. Unlike cryptocurrency, which is highly speculative and unregulated, mutual funds come with regulatory oversight and are eligible for protections through the Canadian Investor Protection Fund (CIPF), which helps secure investments if a brokerage fails.

Financial advisors often recommend that younger investors limit cryptocurrency to a small portion of their portfolio, no more than 5%, while focusing the remainder on more stable options. This diversification helps mitigate potential losses and safeguards against the unpredictability that defines cryptocurrency markets.

Segregated Funds: A Safe, Balanced Option for Canadian Millennials

Segregated funds, offered by Canadian insurance companies, present a balanced investment option for millennials seeking market exposure with additional protection. Combining the investment growth potential of mutual funds with the security of insurance products, segregated funds offer a unique blend of benefits.

1. What Are Segregated Funds?

Segregated funds are investment funds that provide investors with a diversified asset pool and also include an insurance-backed principal guarantee. This means that 75-100% of the initial capital is protected, depending on the product, offering peace of mind even in volatile markets. These funds are also protected by Assuris, a non-profit organization dedicated to safeguarding Canadian insurance products.

2. Why Canadian Millennials Should Consider Segregated Funds

With market volatility an ever-present factor, segregated funds provide Canadian millennials with a more secure option. These funds also have advantages for estate planning, as they can bypass probate fees and simplify asset transfer. For millennials concerned about the stability of newer investments, segregated funds offer the growth potential of equities along with the security of an insurance guarantee, making them a balanced, attractive option.

Start Early: The Power of Compound Interest

One of the best ways for Canadian millennials to grow wealth is by starting their savings and investment journey early. Even small monthly contributions, when invested, grow substantially over time due to compound interest.

1. Beginning with Small Contributions

Many Canadian millennials feel they must save large amounts to begin investing, but this isn’t true. Even CAD $50 - $100 a month can grow significantly with compound interest, provided they consistently increase contributions as their income grows.

2. Example of Compound Growth in Canada

Let’s illustrate: if a 25-year-old Canadian contributes CAD $100 per month to a TFSA or RRSP, achieving an average annual return of 6%, they could accumulate nearly CAD $200,000 by the age of 65. Starting at age 35 reduces this amount by half, to around CAD $100,000, underscoring the importance of starting early and benefiting from compound interest over time.

A Balanced Financial Future: Embracing Both Traditional and Modern Investments

Our millennials’ approach to finances reflects a blend of tradition and innovation. While many are keen on exploring alternative assets like cryptocurrency, achieving long-term stability requires balancing these with proven financial products.

1. Diversification Across Asset Classes

Investing heavily in high-risk assets like cryptocurrency can jeopardize financial security. Instead, financial experts recommend diversification across asset classes within registered accounts like TFSAs and RRSPs; maximizing contribution room over time, then examining non-registered vehicles. By spreading investments across sectors and asset types, millennials reduce the risk of significant losses.

2. The Value of Professional Financial Guidance

This cohort is often skeptical of traditional financial advisors; professional guidance can help them make more informed decisions. Working with a financial advisor can help understanding the benefits and risks of each investment type and craft a strategy that aligns with their unique financial goals. 

Conclusion: Building Wealth with Stability and Security in Mind

Canadian millennials are transforming financial norms by embracing flexible investments, but a well-rounded approach remains key to long-term wealth building. By balancing traditional investments, such as segregated and mutual funds, with modest exposure to newer options like cryptocurrency, millennials can achieve both stability and growth. Starting early and allowing compound interest to work will further secure their financial future.

Investing wisely involves both taking calculated risks and protecting one’s earnings. Millennials who prioritize a diversified approach and seek both growth and security are likely to build a strong financial future—an outcome that aligns with their lifestyle and financial goals.

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