Why it’s time to move beyond one-size-fits-all financial planning
By Kate MacDonald
For many, the concept of retirement brings both positive and negative feelings. At one end of the spectrum, retirement can be exciting, associated with independence, flexibility and freedom. On the other, it can create anxiety, brought on by the thought of the financial savings needed to enjoy a stress-free life.
Regardless of where one stands on that continuum, the financial path leading up to retirement is typically seen as a linear one — but it doesn’t have to be.
Organizations have skewed the conversation toward continuously increasing savings as Canadians approach retirement, without consideration of personal circumstances, lifestyle and other financial goals. The information, tools and education available for financial well-being today are ultimately incomplete, fragmented and biased — often produced by organizations with a vested interest in funnelling capital into certain savings vehicles.
The reality is that there is no one-size-fits-all approach to financial planning. Financial well-being is a personal measure that depends on individual circumstances and motivations, as well as one’s position along the financial literacy continuum.
Generally, people understand what financial lifestyle best suits them and recognize that this can (and should) evolve throughout their lives. Regardless of personal or professional goals, we all experience important milestones throughout our lives that have significant financial implications, such as saving for marriage, travelling, home ownership or having children. Yet, we’re facing a concerning reality that Canadians are not able to access the support they need to make informed financial choices when facing these life-altering decisions.
Breaking down the financial paths
One of the fundamental truths of financial planning is that saving will benefit individuals in their future. However, there are consequences that stem from the assumption that putting all of one’s money into a single savings vehicle will appropriately set them up for success later in life.
Depending on one’s stage of life and lifestyle objectives, there are a number of ways to approach financial planning. While one individual may be focused on starting a family and buying property, another may be dedicated to career development and higher education. At the same time, a third individual may be focused on travelling and spending their life embracing exciting experiences.
The savings strategy required to best set one up for success later in life differs based on an individual’s situation — yet financial education has traditionally remained the same, focused on one type of lifestyle. One of the only commonalities between these situations is the advice the individual receives to continuously save for retirement. To date, the issue often stems from employers due to the limited options they offer: In a survey conducted this April on financial well-being, Morneau Shepell found that 70 per cent of employers indicated they do not provide a financial well-being program beyond retirement education.
The importance of financial well-being
In theory, the consequences of uninformed saving may seem surface level, with individuals being left to get by with diminished financial resources. In reality, much more is at stake.
The correlation between financial well-being and overall health is an ironic one. Financial well-being is often not held to the same high standard as physical and mental health, yet it has been proven to be one of the main contributing factors to high stress. According to the Financial Planning Standards Council Canadians ranked money as their greatest stress, above personal health, work and relationships. If left untreated, stress has the potential to escalate into more severe mental health issues.
A call for action
Financial literacy is a vital subject for Canadians today. It is about ensuring that individuals have the necessary options and tools to make informed and optimized decisions to achieve the lifestyle they desire, while reducing the high level of stress and pressure associated with financial planning. In many cases, individuals have adequate savings or assets; however, the uncertainty around knowing how much is enough can be a cause for stress and concern.
To be successful in all stages of life, individuals need to pursue different strategies outside of simply saving a lump sum for retirement. Individuals should talk to friends and family about their savings strategies and how they are preparing for the demands of life. Much like the increased awareness around mental health, people need to feel comfortable sharing their financial concerns with others in order to eradicate one of the biggest remaining taboos of modern society: financial wellness.
Life, and the demands, timelines and financial expectations that come with it have changed. We’ve all been given the same advice over the years, but the reality is, everyone’s situation is different and pursuing a tailored savings strategy is necessary to be successful throughout all major milestones in life. If organizations — from employers to financial institutions — can work with Canadians to accomplish this, we’ll all be further along in our individual goals for financial well-being.
Kate MacDonald is the senior vice-president and Ontario region leader at Morneau Shepell.