Don’t listen

A day or two ago a mainstream media outlet wrote once again about houses and Millennials. People over 50 find this as interesting as gum surgery, but apparently the kids can’t get enough of it. There’s comfort in the collective notion moisters are being pooched by a system rigged against them. That’s media-trendy now. Like supporting the outlaws who shut down the trains.

I found this paragraph was interesting. Interviewed was an Ontario university student who thinks her generation is financially dumb and politicians should do more to support young house-lusty adults.

“You need to be financially literate to have money work for you and not working for money,” she said. “Every person comes with a different financial background. The government should implement interest rates based on our earnings to encourage millennials to become homeowners.”

It’s alarming an educated lass would believe the government sets interest rates, which they can be dialled up or down, and that Mills should get bigger investment returns because they have less to work with. Because they, like, want houses.

But wait, it gets worse. Here’s a headline form the Toronto Star business section last week. In a bid to stay relevant and not perish, as so many news organizations have, the country’s largest newspaper has gone hard-core moister – with meaningful features on how to save for your wedding.

And this…

Seriously, it said that. ‘Pay’ an RRSP, like it’s a mobile phone bill. Worse, the article states (a) Mills should never put money away for retirement until they’ve paid down a mortgage, because (b) this will just make you pay more tax when retired and (c) your folks will croak anyway, giving you an inheritance. So just keep up with the condo payments. And the Cuba trip.

Remember that pithy little post here last week about oldies? Sure you do. People without DB pension plans retire with median savings of $3,000 and incomes averaging $31,400 (that includes all forms of government pogey). People with pensions are now averaging $55,400 a year – better, but hardly enough to make the most of the last two or three decades of life. At the same time we know at least two-thirds of these folks have houses, almost all paid for.

The conclusion: fail.

Real estate costs a ton to buy, close, own and sell. We’ve just been through a decade of historic asset inflation, yet people retiring with heaps of housing equity have hardly enough to pay the monthly bills. Once into their 60s or 70s a lot of the wrinklie old weenies are too settled and creaky to contemplate moving. So they sit on piles of money that could be providing them a far better quality of life. Now the next generation seems intent on making the same mistake. House-rich, portfolio poor.

By the way, a five-year mortgage is currently available all over everywhere for less than 3%. Even the Big Five banks are down to 2.89% – even better if you tell TNL@TB about your cat. Inflation in now running at 2.4%, and real estate values have jumped nationally by low double-digits as listings wither. So why would you divert cash flow to pay down a mortgage at almost the cost of money when the asset financed is rising in market value?

Bad advice.

But that doesn’t necessarily mean it’s a mortgage or an RRSP. Actually Mills should be totally focussed on maxing TFSA contributions, getting that money into growth-oriented assets (like equity ETFs), and letting the magic of tax-free compounding happen. By retirement this can yield about $650,000 after three decades for someone just starting now at age 30. With CPP and OAS that’ll provide a base income of more than $60,000, with no tax. If you have a company pension or make RRSP contributions (which don’t need to be accessed at all until your 70s), bonus. And if you’re parents kick, well, it’s all good. The Star said so.

Seriously… we as a society are heading for a wall. Despite Google, Siri, Alexa and Garth – and the fact that life without enough money is misery – financial illiteracy surrounds us. Nowhere is that being manifested more clearly than in this myth: the goal of life is to get a house, and financial security comes from paying it off.

If that were so, old people would be happy. I rest my case.