As inflation and interest rates continue to climb, Canadians are faced with volatile markets, declining real-estate values and rising costs related to buying and borrowing. This has left many less confident about their abilities to meet their financial goals.
About one in four are concerned their financial situations will get worse in the next year, according to a recent poll by CIBC. On average, Canadians rate their overall financial wellness as a six out of 10.
“There’s a lot of uncertainty,” says Carissa Lucreziano, Vice-President of Financial and Investment Advice at CIBC. “As a result, Canadians really have money on their minds these days, with eight out of 10 telling us they’re paying close attention to their finances on a regular basis and more than half feeling they need to get a better handle on their financial situation.”
That said, not everyone is glum about their finances. About 60 percent of survey respondents said they were feeling positive about their current financial situation, and they felt confident about meeting their 2022 financial goals and priorities.
The CIBC survey found that almost half of Canadians were concerned about their ability to pay continuing home and day-to-day expenses. Roughly one out of three were worried about making their mortgage payments. Many also wondered if they would be able to save, invest and pay for unexpected expenses. To help stretch their dollars in the face of rising inflation and interest rates, many Canadians are cutting back on purchases, using coupons, switching from brand-name products to lower-cost options and sticking more closely to a budget.
“These are all great actions to take, because they help us take better control of our finances,” Ms. Lucreziano says. “But Canadians also know there’s more they could do if they only had a better understanding of their finances, and of the strategies and resources available to them.”
CIBC’s survey findings underline a need for greater financial literacy. More than half of Canadians said they wished their knowledge was at a higher level, particularly when it comes to budgeting, saving and paying off their debts.
The right advisor can help Canadians improve in all these areas, Ms. Lucreziano says. An experienced professional will take the time to understand a client’s complete financial picture. This includes how much money is coming in, how much is going out, and what short-, mid- and long-term goals a client wants to achieve. Then, they will come up with a plan that considers today’s economic challenges.
The ability of an advisor to understand a client’s state of mind in the face of these challenges is also critical, Ms. Lucreziano says.
“For example, some clients today may find it less attractive to invest a lump sum, because they’re worried about cash flow. So, rather than putting off making any investments at all, an advisor who has taken the time to understand a client’s current financial situation, goals and concerns might recommend setting up regular investments for smaller amounts each month over the next year.
“This can help reduce a client’s anxiety while ensuring they continue to invest toward their goals.”
In other cases, it might make sense to delay timelines within an existing financial plan, Ms. Lucreziano says. A couple looking to buy a house within the next two years may need to wait another year, because higher living costs means they’ve had to lower the amount they contribute to their monthly savings.
For those nearing retirement, advice from a financial professional who understands how today’s economic conditions can affect future plans is invaluable, she adds.
“That’s one of the other things our advisors do very well at CIBC — give clients a clear picture of the purchasing power of their investments and what this will likely look like after inflation is taken into consideration. This allows our clients to plan realistically for their retirement.”
Working closely with the right advisor can help reduce emotional responses to market conditions and major life events, Ms. Lucreziano says. Talking things through with an advisor can prevent anxiety-driven selling of investment assets which, in addition to potential losses of profits and opportunities, can incur transaction fees and tax liabilities, she explains.
These discussions can also reveal a client’s real tolerance for risk.
“Market swings can show us — and our clients — how comfortable they really are with their investment plan,” Ms. Lucreziano says. “When times are good, people may think they have a higher tolerance for risk, but when they start losing sleep over their investments, that might be a sign it’s time to revisit their plan with their advisor.”
As a best practice, she suggests reviewing a financial plan with an advisor at least once a year, or when there’s a material change in circumstances, such as the birth of a child, a divorce or the death of a spouse.
“When there are economic or market events, such as what we’re experiencing today, it becomes even more important to turn to an experienced advisor,” Ms. Lucreziano says. “The right one can help you navigate through financial challenges, ease your concerns and strengthen your financial literacy, by guiding you to the right tools and resources.”
Originally published in The Globe and Mail, November 2022.