September 28, 2023

Episode 272: Rob Carrick: Canadian Personal Finance in 2023

September 28, 2023

Not all journalists get to live their beat, but Rob Carrick does. His personal finance column in The Globe and Mail is one regular guy’s attempt to make sense of the world of money. Rob is married with kids and constantly figuring out ways to spend and invest intelligently. He asks the same questions you would and applies his experience and contacts to get answers. his columns simplify – they never complicate.

Rob got his start in financial writing back in the early 1990s when he covered the Bay Street business scene for The Canadian Press, the country’s national news service. A few years later, he was transferred to CP’s parliamentary bureau in Ottawa to cover consumer affairs and, later, the federal Department of Finance. He left CP and joined The Globe and Mail as investment reporter in 1996. A few years after that, he was talking to his boss at the time about how they didn’t do much personal finance coverage at The Globe. The paper’s Personal Finance column was launched shortly afterwards, with him at the wheel.

In this episode, we welcome back one of Canada's most trusted and widely read financial experts to discuss the state of Canadian personal finance. Rob Carrick is a columnist for The Globe and Mail, where he has brought his boots-on-the-ground perspective to readers for more than 20 years. He also co-hosts the Stress Test Podcast, where regular Canadians offer real-life perspectives on the biggest stress tests that their personal finances face in the wake of COVID-19. Tuning in, you’ll find out which issues are at the forefront of Rob’s readers’ lives. Next, he shares his perspective on GICs and ETFs and draws a comparison between affordable housing today and the mutual fund market of 20 to 30 years ago. We talk about the lack of comprehensive advice that Canadians are receiving from their planners, the state of affordable housing in the country, and why so many Canadians say they are giving up on home ownership altogether. We also compare housing returns to the stock market and discuss successfully using a reverse mortgage, the non-financial challenges faced by retirees, and more. For a comprehensive overview of the state of personal finance in Canada (and some practical advice for protecting yourself and prospering in a challenging economy), don’t miss today’s episode!

Key Points From This Episode:

(0:00:19) Introducing today’s returning guest, Rob Carrick.

(0:02:38) Issues at the forefront of Rob’s readers’ lives today.

(0:04:02) His perspective on GICs, ETFs, and simplification.

(0:09:33) Comparing today’s EFT Market with the mutual fund market of 20 to 30 years ago.

(0:15:24) The lack of comprehensive advice Canadians are receiving from their planners.

(0:20:03) Rob’s perspective on affordable housing, as outlined in his Globe and Mail article.

(0:24:52) Why a growing number of adults continue to live with their parents into adulthood.

(0:28:48) Reasons that many Canadians say they are “giving up on home ownership.”

(0:31:44) Housing returns in comparison to the stock market.

(0:35:13) Successfully using a reverse mortgage.

(0:37:28) Some of the non-financial challenges faced by retirees.

(0:41:06) The number of parents supporting their adult children today.

(0:45:03) How adult children are pitching in to support their parents.

(0:49:06) Rob’s advice for educating the next generation on financial planning.

Read The Transcript:

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore: Welcome to Episode 272, and we welcome back a very good friend of the show, Globe and Mail writer, Rob Carrick. This week, we're going to talk about the state of Canadian personal finance. Rob is such a great guy, great experience, and talks to so many Canadians through his various media that he gets a real sense of what's going on in personal finance in Canadians. So it's great to have him back on. We just realized he was on 100 episodes ago in Episode 172, as well as Episode 39. Rob's a longtime writer, personal finance writer in The Globe and Mail. I've known Rob for well over 25 years, so it's super fun to have him back on.

Ben Felix: Yes. I think he's 27 years doing personal finance at The Globe, something like that.

Cameron Passmore: Yes, sounded all right.

Ben Felix: He's been doing it for a long time, though. Like he's telling, Cameron, he's got a real boots-on-the-ground perspective, and he actually tells us during the conversation that he's got a survey that he sends out through his newsletter, and he'll ask questions. If he's getting a sense that maybe something's going on, but he's not seeing it yet in the economic data, and he's not seeing any publications about it, he can ask questions to his many thousands of readers, and he'll get many 1000s of responses back. So he's actually able to get, now, it's a biased sample which acknowledges. But even so, he's able to get insight, aggregated insight into how people are feeling about certain topics before that data is surfaced anywhere else, which I think is really interesting.

Cameron Passmore: So his personal finance column appears twice weekly in The Globe and Mail. He has a portfolio strategy column that runs on alternating Saturdays also in The Globe. He also has a twice-weekly email newsletter called Carrick on Money that he puts together, that accumulates the best personal finance and investing material that he's found online. He also co-hosts the popular podcast, Stress Test. Ben, anything else to add?

Ben Felix: That's a good introduction. Stress Test is a cool podcast, though. They talk to people, kind of like the survey thing that I mentioned. They talk to people about what's really going on in their lives, just regular Canadians. Yeah, it's a nice podcast. Anyway, I think that's a good introduction, so we'll go ahead to our conversation on the state of Canadian personal finance with Rob Carrick.

***

Cameron Passmore: Rob, it's great to welcome you back on the Rational Reminder Podcast.

Rob Carrick: Glad to be here.

Cameron Passmore: Yes. It's super great to see you. So we have a number of topics to get to with you today, including investing, housing, and retirement. But first, we have to ask you, what are some of the big topics currently affecting your readers?

Rob Carrick: Well, I'm getting a lot of hard luck stories these days. People who are in a jackpot of one sort or another, and I think that's increased a little bit as financial stresses are mounting. So there's people having problems with debts, they're having problems with trying to get money out of RDSPs, RESPs, all sorts of things. I think the stress levels ramped up a little bit. I don't want to overdramatize that, though. I know there's like tons of headlines about how Canadian households are struggling. My senses a lot are very far from struggling, or actually done pretty well in the last few years.

So you've got two groups, there's the struggling group, and then there's a pretty comfortable group. The struggling group, they're reaching out. The comfortable group are asking a lot of questions about interest-bearing investments these days. Lots of interest in GICs, and high-interest savings account, ETFs. People are very, very interested in getting a 5% return with no market risk. I'm a bit surprised. In summer 2022, I think somebody came up with a 5% GIC, and I wrote a story, and got a lot of play on the website. I thought, "Let's see how that goes," and there's been a real strong flood of money into those products, and a lot of interest for readers in them. It just reminds me that people really want good returns without risk.

Ben Felix: That's one of the questions we want to ask you about actually. Do you think people are playing it too safe by piling money into GICs?

Rob Carrick: I think we're probably at the tipping point for that. There was a lot of money piled up in checking accounts during the pandemic lockdowns. So where did it go? It's almost all gone into conservative interest-paying investments. I think a lot of that money probably would ideally be going into the markets for superior longer-term gains. I think people are extrapolating 5% today, and thinking that's when you return from conservative investments. When in fact, no, it's a peak we're at right now. I certainly understand short-term money grab up that 5%. But if you expect to retire in 30 years, based on GICs, we're at the top of the mountain, and we're going down pretty soon. I think people need to recognize that they'll need to move some stocks into their portfolio to get where they want to go.

Ben Felix: Yes. We had very similar comments on a recent podcast episode, and we've got a YouTube video coming out today at noon actually, the day we're recording on the same topic, but I totally agree. I think there's a lot of long-term risk in expecting to get that 5% forever, which I think what a lot of people see.

Rob Carrick:Yes, that's it. If I had some money that I was confident that I didn't need, and could live with the complete lack of liquidity, a 5% GIC at 5.5% or 5.2%, or whatever it is looks pretty good as a piece of my overall broader portfolio with exposures all over the place. I mean, 5% is a nice threshold. I made a prediction a couple of weeks ago that – not really a prediction, but I sort of put it out there that we might hit 6%, and I do see that one of the alternative banks is offering a 6%, 18-month GIC. Not bad.

Ben Felix: Yes, crazy.

Cameron Passmore: Not bad at all. It's one of the popular evolutions in the Canadian ETF market, or the asset allocation ETFs. Based on your interaction with your readers and listeners, how impactful have these been in Canadians how they approach their investing?

Rob Carrick: I would give them a 10 out of 10 for importance as a product introduction in the Canadian investing marketplace, Maybe 10.5 out of 10. It's very rare that I have an opportunity to tell people, "Just do this, just do it. Just buy an asset allocation, pick, balance pick, conservative pick, aggressive pick, all equity. I don't care which one you pick. Just do that, and I'm very confident you will have a good investing outcome if you can keep your hands off it for 10 years plus."

People are slowly picking up on this. They fight the idea though, because they want more complexity. That's too simple, that can't be right. I tell them, yes, it is right, and it is simple. But simple is a virtue, it's not a criticism. So I look at the assets, and I think it's a very strong, healthy amount of assets they gather was about 15 billion, I'm thinking in aggregate. But it could be more, could be a lot more. So glass half full, glass half empty. I'm going to say half full. They've really come a long way since the six or so years they've been around. But a lot more money could be in the – readers are interested but not hugely interested. It's like a little trickle of queries about them. I just had one the other day. It's almost like you have to sort of talk people through it, and encourage them that this simple, easy-to-do investment approach is right for them. I haven't heard very many critiques of it. People who are in are usually pretty happy with what's happening.

Ben Felix: Yeah, it's such a good point on simplicity. Sometimes making it harder for people to actually stick with that investment. They want to add whatever. Should I add a tech index? Should I add a bank index?

Rob Carrick: Exactly. They're not happy list. They're complexify and simple investment. But really, I mean, if you dig down into a lot of these products that have everything you need, that have emerging markets, that got exposure to the S&P 500, which means you've got your tech. It's really, everything is in there. You don't need to get too cute in building. I'm glad to see that for the most part, ETF companies offering these products have resisted what I'm sure is a temptation to start adding like trends of the moment to these products to make them sexier. Like let's put all the products, and let's put a hedging component in, let's do real assets. They're sticking to the major asset classes, and I think that tells me that they've got their head screwed on straight about how these products should work.

Ben Felix: Yes. You even wrote about TD recently. They simplified their product. They had a more complex product.

Rob Carrick: That's true. They took the active management out which is a small portion. They went to index tracking for the whole thing. They were able to lower the fee. I think that's a way to win. They're basically using like big broad market index tracking products, and that was able to chop like five basis points off the fee. I think that's a pretty big win.

Ben Felix: Yes. Do you have a favourite issuer of the asset allocation ETFs?

Rob Carrick: Well, I mean, I don't really. I think there's an interesting interplay between cost, and construction, and all that sort of thing. I mean, I give Vanguard points for bringing this to Canada. You know what, to me, it's a perfect example of what Vanguard brings to an investing environment, very investor forward thinking. There's really nothing about it that's trendy or acute. It's a really plain vanilla type investments. Not the cheapest, though. I mean, it's interesting to see Vanguard hanging out there at the high end. TD put a new floor, and I think I've expect the MDR for its products to be about 0.18. There's Vanguard up at 0.25%. It's not a huge difference, but I mean, every bit counts. And Vanguard usually is a firm leader on costs, and they've been sort of caught out here. I'm curious to see if there's any developments on that front.

Cameron Passmore: So Rob, you and I have been pretty active in this industry for 20, 30 years, and it's over 30 years for me. How would you say the ETF market today compares to the mutual fund market of 20 to 30 years ago?

Rob Carrick: Oh, Cameron, you know what? It's funny, I think you read my mind with that question, because I get those blasts from the banks every week or month about the new products that are being issued, and I was starting to think, the mutual fund alarm was going off. Like there's a lot of trends chasing going on now. There's a lot of products that I really questioned whether it's going to be around in a few years. I mean, I look at that closures of products. That reminds me of an industry that feel knows that it is maturing, and we'll need to come up with all kinds of new flavours to keep investors interested to bring new money in. I think a lot of the products that are coming out aren't really worth owning, and never will be worth owning.

I find with the trend-chasing that it often happens when a trend is peaking. That means, there's really very little upside left to capture. I do find the idea that we need more products, not better products. That's where I think it is. Now, that said, there is still an excellent core, a very low-cost ETF out there that are outstanding way to build a portfolio. And ETFs will always have that advantage over the fund industry. The fund industry was sort of fat, and happy in that day. They never wanted to play ball on fees. They've since incrementally changed that. but ETFs remain at their heart an excellent product, but they are – I think they're struggling to figure out how do we build our brand, how do we build our asset base and a lot of is flaky products.

Cameron Passmore: Yes. That's what I was going to say. To me, the big difference is fees. You can build beautiful portfolios now, like you said, for 18, 20, 25 basis points. But back in the day, fees weren't even discussed, and you'd been to many of these mutual fund roadshows like a long time ago, where fees would have been well north of 3%. It was never even contemplated.

Rob Carrick: I think the mutual fund industry is still fighting ideas that fees matter. A reader got in touch the other day, having an advisor at a pretty big advisory firm using mutual funds. Their average MER is about 2.5%. The advisor was talking about like all the package of things you get for this and all the service you get. He was saying, "Well, I don't really get the service." And he was asking sort of to help them figure out whether there was any value there. I was thinking, here you are in a world where you're trying to defend a 2.5% fee. You could build an ETF portfolio for, as you say, 10 to 20 basis points, add on an advice fee of 125 basis points, and you're half what the mutual fund portfolio is. So yes. In mutual fund land fees, there some cost-conscious companies. MERs are falling, but they're falling so slowly and the aggregate average fees are still very high.

Ben Felix: It really is incredible. Morningstar does the global fund investor experience survey in Canada. The fees are coming down, but very slowly.

Rob Carrick: It's an interesting anecdote, I'll tell you about all of this. You know, the number of enquiries I get from readers about mutual funds. I'd say three a year. So they say that index investing is the passive investing. I think mutual fund investing is the passive investing. It's just, people are just not asking questions. They basically went out all the questioning, searching investors who want more returns, want lower fees. What's left in mutual funds are very sort of people who are willing to farm out their work to revise, or listen to their advisor, follow instructions and aren't asking a lot of questions. I think the mutual fund industry has sort of created a base of people who are okay with what it's doing.

Ben Felix: That's such an interesting observation. Because when you look at the assets in mutual funds, they still swap ETFs.

Rob Carrick: Yes. The ETFs have much more momentum, but mutual funds, I mean, they're just a takeaway from three trillion in assets, if I'm remembering correctly.

Ben Felix: Yes, crazy stuff. I think you nailed the dynamics of the ETF market, by the way. We had a professor on a few episodes ago, and he talked about how issuers, they can compete on cost for the total market ETFs. We've kind of seen that go maybe to a floor or close to it. And then the other way that they can compete is by launching attention-inducing products, or like interesting products, and that's the kind of flaky stuff that I think you're talking about.

Rob Carrick: Right. It's interesting that that stuff often has a much higher cost than the index track. So you can run an index fund with – even if you're using sampling, you probably got hundreds of stocks in there. Here, you've got this specialized portfolio, let's say banks, for example, look at the cost of the bank ETFs, are way higher than the broader market ETFs, and you're talking six stocks.

Ben Felix: Yes. So crazy. What do you think about the long-proclaimed death of the 60-40 portfolio?

Rob Carrick: I think it came back to life. It was only dead for a year. It was a stunning year for bonds. I think the benchmark bond index fell like 11% on a total return basis. That is stunning. I've never seen the likes of that. Cameron, I bet you haven't either. So the 60-40 had an epic fail last year, but it's coming back this year. I think that all the people who are still in those portfolios will realize soon that they didn't blow their brains out with that choice. But I do think that it was a good opportunity for people to reassess their asset allocation.

I mean, what is 60-40 the right one for you? Should it be 70-30, or do you think you're going to live to be 90 or 100? Maybe it should be 70-30. There was a lot of talk. In fact, I was just rereading a column I wrote a little while ago on the old like 100 minus your age. Shouldn't be 110 minus your age or 120 minus your age. If you use those methods of calculating the weighting of stocks and bonds, then you do end up with higher asset allocation. But 60-40 seems to resonate with people. It's like it hits them right in the gut as something comfortable. I'm getting a little tilt to stocks, but I got lots of bonds. I think when the world writes itself, and when interest rates go down, and bonds get those capital gains, as well as the interest, the 60-40 pro is going to have a great year.

Cameron Passmore: Nice. So you mentioned value from advisors. What proportion of Canadians do you think are getting comprehensive advice from their financial advisor?

Rob Carrick: So I had a JD Power survey on advisors and customer satisfaction with it. I think I'm going on memory here, but I think it says something like 6% are getting what JD Powers set out as comprehensive financial planning and services that go beyond just managing investments. What I take from that is that very few people are getting comprehensive. I think a lot of people were probably a little fuzzy on all this, and when they answer these surveys – I find these financial services give out results that I just don't believe a lot of times. Like half the people can't afford $200 for a financial emergency.

I mean, come on. I think the way they're worded, I think the way they're put out there, I think the way they catch people at dinner, and they're not really thinking they'll say anything to make the surveyor go away. I don't believe half the data and the 6% sounds a bit low. But I don't think it's very low. I think most investors are just getting their portfolios managed, and they may get a little chat about taxes, and they may get urged to open up FHSA for their kids or that sort of thing. And maybe the advisor has systematized their contributions to all their accounts like it's going to come out of your account, go in every month. But a financial plan, a conversation about goals, I mean, a look at estates, and wills, and taxes and all that stuff. I think a minority or getting that probably a very small minority.

Cameron Passmore: Where do you think the resistance if there is resistance? Is it on the consumer side not really necessarily wanting it, or is it up to the industry to compel people to seek out planning advice?

Rob Carrick: It's a little bit of both. I think people want it. If you said, "Cameron, would you like us to do a big financial plan on you before we get to your investments?" You'd say, "Yes, please." But the process of doing it is laborious, and I'll have to find out numbers, and I don't know where to find them. Eventually, I'm going to lose interest in things. Maybe this could all just go away. I mean, I've been through it myself, and I was surprised at how many factoids I had to go find for the planner. It was a bit annoying, but I was very curious about the results, so I was quite motivated. I don't understand why people aren't more motivated. You got to tough it out and do this. I would put a little bit of onus on the individuals, but it's also the industry. It's all about selling. It's a selling business. It's not an advice business, and it likes to pretend otherwise, it likes to pretend it's an expertise business. But really, it's about selling, it's about pulling revenue out of client portfolios.

The planning is kind of like – that's like your eye on, you're sitting in neutral. You're not driving forward during that. I think it's partly the industry. Now, the industry is making moves. I'm hearing the term planning used a lot more by people in the industry, but I'm not sure what the net effect is on people. Like, is there a financial plan? Have you had a conversation with the person? What's driving the investment choice? Did you just do a quick risk questionnaire, and then off to the races? I think that's what's happening most of the time.

I think there's a big disconnect between what people want, need, and what they're getting from the advice industry. I mean, my email in-basket is full of questions, questions, questions, questions all the time. I would say, about four or five times out of 10, I'm sending people lists of investment advisors. These are advisor questions, planner questions, and a lot of them say, "Oh, thank you. I'm really open to doing that." Why are these people not already working with planners and advisors? Well, I suspect some don't have the assets, or some can't find the right person.

I think there's like two solitudes out there. There's the planners and advisors, and then there's the clients. Half the clients or some percentage of them are finding you, and you've got good relationships, and it's going well, and then there's a whole chunk of people who aren't matched up with advisors or planners who probably should be. I've challenged the industry to find a way to serve these people at whatever asset level they have. I mean, there's all this talk about how AI is going to change the advice business. Well, I can think of a great way. How about you figure out a way to serve people with small portfolios?

Ben Felix: Yes, it's not an easy problem to solve. We know that.

Rob Carrick: It is not. But I don't think people are expecting you to reinvent the wheel here. Just some rudimentary thing that will help people organize their thinking, and keep track of things would be sufficient. It's better than zero. That's what I think you need to think about is what's better than zero, zero advice. We don't need perfect. We don't need something for high-net-worth people that can be fit into an AI thing. It's just, what do you own? How much are you saving? How much do you think you want in retirement? Let's connect the dots and see how it goes. That's all we need.

Ben Felix: Yes, which is possible with technology that's out there. It's just finding somebody with the business model to make it work, to build it.

Rob Carrick: Exactly.

Ben Felix: I want to move on to housing. You wrote a really, I'd call it provocative article on how much of housing affordability issues are related to actual affordability, and how much of it is related to people expecting too much when they're looking for a house.

Rob Carrick: Yes. That call was based on some comparisons of the cost of living of cities in Canada and globally. I was pretty shocked to see that Canadian cities are really not in the game for global expensiveness. We are well down the list, and so it made me think, what is the issue here? I think we have this idea, it's cultural in Canada, that you must own a home. That legitimizes you. It means you're on the road to success. People want a house, a condo will not be sufficient, a townhouse as a good starter. They want a house, and I hate being the one to tell people they're asking too much, you're shooting too high, you can't have things.

I tried to help people figure out how they will get the things they want. But if the housing market of today is the true value of housing. Then, a lot of people, if they expect to own these houses are asking too much. I think they're going to have to lower their sights a bit. I mean, I think it's going to have to be, I will have to move out of an expensive city like Toronto or Vancouver, maybe you work remotely, and live in a smaller town. Or I will settle for a two-bedroom condo. and raise some kids there. Or we'll try to get a townhouse in the city. Or if I want a big house, I'm willing to go way out to get it.

I would like to see where construction of houses of a more modest type so that people could say, "That's an affordable option for me. It's not as big as I want, but it's attainable to me." I think it's a mix. People expect more than they can probably achieve, but maybe we need to give them more options that will be suitable for them.

Cameron Passmore: What are some of the challenges of climbing the property ladder where you start with something small, and then upgrade, and then upgrade again? Which is quite typical, I think.

Rob Carrick: Yes, it is. But the problem to me is, you buy a condo – I mean, I totally see it. You want to get into the property market, you want to stop renting, you want to own your own place and start building equity. But the problem is that our idea of housing was built on the 10 to 20 most incredible years, the Canadian housing market will ever have. We've seen the best. I will tell you that I think we've seen the best year, and so we expect that. All I have to do is buy a condo, let it go up 10% a year, and then I'll cash out, and I'll use that as the down payment on my other place, and I can push the risk level to the max. Because I know that my house will start appreciating in value as soon as I buy it. All my worries and risks financially by carrying this big mortgage will be offset by my rising equity. At the end of the day, I'm very smart for having done this.

What if you get into the condo market, and the condo market flatlines, then you've paid all this cost to get into the condo? You're going to have to pay all these costs to get out of the condo, you're going to have to take on a bigger mortgage when you move. That's the risk. The risk isn't that the market sort of supports you by delivering chunks of new equity every year. Take a look at what's happening to all the people who bought investment condos. The math is working against them, and it works against you if you want to move up the property ladder. I would encourage people to think about buying a 10-year house or property. Where can I buy in, and I can live here for 10 years? Build up your equity a lot before you move. Don't expect to jump from place, to place, to place. I mean, that was totally feasible in the past few years when house prices were rising all the time, and you could just – every property bought was launched to a better property or bigger property. More staying put would be very good for people's personal finances.

Ben Felix: Yes. We've used that sort of 10-year rough rule of thumb too. I think that makes a lot of sense. If it's not buying a condo, where do you think people who want to get into the housing market in the next five years should be parking their money?

Rob Carrick: Well, if you're parking your money, and you're saving your downpayment, then I would say you have to be in something safe. For me, I would probably open up an investment account and use a high-interest savings ETF, get 5.3%. I would use maybe a trading app like Wealthsimple Trade. I'm not paying any commissions, so there's zero friction, and I would just let that sucker pile up. If interest rates start to come down, I start to look at what the alternatives are. But the high-interest savings account ETFs track the Bank of Canada's overnight rate, and the Bank of Canada isn't in any hurry to lower that rate. So I think you're going to get your five.

Then the Bank of Canada is probably going to make a bunch of little quarter-point cuts very gingerly to see how things go. So you'll see your returns go down a little bit. I wouldn't want to lock money up in GICs, probably because I know what people are looking for houses. Sometimes it happens quicker than they thought, and you don't have to go and ask how to cash out of the GIC, and find out the penalty is like a pint of blood. That's why I like high-interest savings account ETFs. Also, investment savings accounts. Those are like savings account packages like mutual funds. The yields on those are 4.5% to 5% right now. That's pretty good too. I would use one of those. That's what I would do.

Cameron Passmore: Yes, we agree. How common is it these days for adult kids to live with their parents?

Rob Carrick: It's way common. What's common – when you use the term adult kid, what age do you think you mean?

Cameron Passmore: I'm thinking like mid to late 20s?

Rob Carrick: Yes, it's happening into the 40s.

Cameron Passmore: What?

Rob Carrick: Yes, yes, yes. You know what? I'm super interested in this. I mean, I have two millennial-age sons, and they both live in Ottawa, work, they live on their own places. But earlier on, they were sort of in and out of the house on the revolving door kind of thing. So I'm really interested in this sort of thing. So I have done surveys in my newsletter to ask what's happening. Yes, there are adult kids in their 20s, 30s, and early 40s living with their parents. The reasons are all over the place. Some it's cultural. In certain cultures, you live at home until you get married to buy a house, and that's perfectly normal. In fact, is quite sensible in some ways. I expect we'll see more of it happening because there's the affordability side of it too. Rents are exorbitant. How do you save for a house down payment if you're paying 2500 a month in rent, if you have a student loan as well?

So through sheer practicality, there's a little judginess built into these topics. Like, why are these young kids living with their parents? What's wrong with them? Well, sometimes nothing is wrong with them, they're actually quite astute on personal finance, and they're lucky to have nice parents, and it's a good arrangement. And they can go and get out from under these high rents, and build up some home equity, and away they go. And maybe they can also put some money away for retirement, start a little investing. They can max out their FHSAs because they're not paying rent, or they're paying minimum rent. I think something like about half of parents are charging their kids rent, and usually it's a nominal rent, and many of them aren't actually taking the rent, per se. They're actually putting it in investments for their kids, and they'll give it back to them. It's just sort of teaching them a little discipline of shelter cost money. We're going to act that out with this rent.

That's what's happening. It's super common. I really got onto the topic of kids living at home or young adults living at home back in 2009 after the financial crisis. It was like, remember the boomerang kids, these losers who was going home to live with their parents. What's wrong with them? Failure to launch. Now, it's really normalized, although people don't go around bragging about, "My kids are living at my home." They sort of mutter about it with people in disarray. But it's normal now, and I'm standing back and thinking a lot of these people are doing smart things.

Ben Felix: You mentioned parents charging their kids rent. Are you seeing any parents sell half of their house to their kids?

Rob Carrick: I've seen it happen once. Actually, I wrote a column about it, I think early August. A guy reached out to me and said, "We're doing something really interesting with our house." My partner and I have bought half my parents’ house, and we've turned it into sort of a duplex. We put a lot of rental bucks in, and they've basically – the parents live on the ground floor, the younger couple lives on the upper floor. They've created separate heating and cooling units, separate entrances. But it's a nice old house in Toronto that the younger couple could never afford to live in.

Now, the parents have little support. They're into their retirement years. The young couple thinks, "We start a family, we've got built-in daycare. And it was working out pretty well. I wrote a column on it, seemed to get a fair amount of engagement. I think that's a model really. I mean, I'm hearing a lot of talk about, "I want my kids to inherit my house." Well, why wait till you're dead for that to happen? You got a big old city house in Toronto, or Ottawa, or any Canadian city, and you're not using it all as parents and you're thinking, "Should we downsize? I don't want to be doing all the work." What about having your kids come and spend some money to remodel? I kind of think the resale value on those houses will be huge, because you're going to have a market of people who want to do the same thing as you when you go to sell. So I don't think that's happening a lot, but I think a lot of people are open to the idea and exploring it. It's complicated. You need a lawyer. To me, it's a problem solver.

Cameron Passmore: I'm conflicted in this next question, because I live in suburban Ottawa, where there are fields, hundreds, thousands of new homes being built. But are more Canadians giving up on homeownership?

Rob Carrick: Yes. You know what, they say they are. That's the thing. There's a lot of young people who are really sort of depressed about the economy, and affordability, and stuff, and they're making big statements like, "I'll never own a house. I'll never have kids. I'll never retire." I think, you know what, you're 20-something. Wait a few years. Life is long, things happen. You'll feel more optimistic as time goes by. A lot of people say they're giving up on homeownership, but I question whether that's – we flash ahead 10, 15 years. I bet they'll be owning houses somewhere somehow. Maybe it'll be a condo, maybe it'll be a house in one of those fields near you. The homeownership rate is down a bit, it peaked at about 69%. I think it's backtracked a little bit. But maybe it was a bit artificially high because of all this homeownership loss that was so prevalent during the boom.

But I think this is Canada, and I don't see a path towards substantially less homeownership anywhere right now. I don't know what we're changing our ways. Maybe a honking big crash, like something along the lines of what happened in the US, but I would not predict that happening at Canada. I've actually surprised at how well people are managing to keep their mortgages all inside. There's been very few bits of evidence that people are walking away from their houses. I mean, a year, a few anecdotes, stories, people putting their houses up for sale because they can't afford their mortgages. But my wife and I bought our first house in Toronto in the early nineties. I know what a crashed housing market looks like. Every house for sale is on sale for less than it sold the previous time. That's not happening.

Ben Felix: Who do you think has been hit worse in the last year or so? Renters, you mentioned rents have been soaring, or new homeowners with soaring mortgage payments.

Rob Carrick: I'm going to go with renters, and I'll tell you why. I mean, the homeowners have been hit hard. We can be talking hundreds, and hundreds of dollars more a month. But they've got a house, and it will appreciate in value. So they've got a solid asset underpinning all this pain. And they can always say, "Look, we can weather this, and stay in our house 10 years." We can be very confident, interest rates will probably be lower, or for much of those 10 years, and we're building equity. And we have a place to live and we can do what we want. The renters are getting hammered with higher costs, and they've got nothing, there's no positive in all of this. It's just cash being pulled out of their pockets. In my personal finance role, and I've talked to other people on our globe, personal finance team about this. I think this might be the number one personal finance problem for young people today. It's like, high rents. What do we do about it?

I mean, you can't tell people, "Oh, just go rent in some far-flung city." It doesn't work out that way. The remedies available for getting affordable housing don't all apply to renting. What we're seeing is just like these double-digit year-over-year increases, consistently. It's depressing. I don't really know what to offer people.

Cameron Passmore: Yes. How have Canadian housing returns compared to stock market returns for the last decade?

Rob Carrick: BMO economics did a report on this recently, and the stock market's – you know what's interesting is, what I took out of this. The Canadian stock market beats housing, but you know what beats the Canadian stock market is the S&P 500. There was the S&P returns, TSX returns, and housing. And I was thinking, "Well, the lesson here is have stocks, but also make sure you have a lot of American stocks." The stock market did better than housing, and I did a look at myself this over the past 10 years. I thought housing did a nice job at double the rate of inflation. Very nice outcome if you own real estate, but stocks did better. I know people that were still in the tax argument at me, which is 100% true. You can sell a house or principal residence tax-free, but stocks offer liquidity and I think you have to put a value on that.

House is a terrible asset for using to generate any usable income. You have to burrow against your own house. And stocks, you can manage, you can take profits, you can collect dividends. It become much more usable assets, so people always forget to put that into their comparison. But yes, I think I think there's no doubt, stocks have outperformed houses. I know that doesn't really resonate with people, they don't believe it, they don't care. They really prefer houses. You must find this in your work that people just light up when they talk about real estate investing.

Ben Felix: Oh, yes. People love it. There's something about it. And particularly in Canada, it seems.

Rob Carrick: You know the phrase, income property. How many times have you heard that in the past year compared to the previous 20 years? People who I know who I would never expect to say they're saying to me what about an income property, they want. They want it bad. I was reading like this part of that same report from BMO Economics, comparing returns on houses. The stock market was also noting that it's not a great time to buy an income property. Prices haven't come down all that much. Interest rates are sky high, but people are like, this is what they really want.

Ben Felix: Yes. You mentioned the illiquidity of homes. What do you think about the idea that people can rely on their home equity as part of their retirement plan?

Rob Carrick: My answer to that is how. If you need income to pay the bills, how does your house give you that? The only way to make a house provide a huge chunk of living income is to sell it, and rent, or downsize, downsize substantially. I mean, like probably something much smaller, much further away. I mean, unless you've got some giant mansion, and you're going to go down to a two-bedroom condo or something. But I find that anecdotally, a lot of people who downsize, what they're downsizing to isn't dramatically less money than what they're selling. Because a lot of people want to go much more urban into a nicer neighbourhood. And so, you're actually – you're downsizing, but you're moving upmarket in certain ways. So that aspect of it isn't going to help you generate retirement income. And so you've got this asset with appreciating equity, but how do you tap into the equity so you've got to get a home equity line of credit, you've got to get a reverse mortgage, both like expensive, very, very expensive right now.

I mean, the interest rates on both of them are high, heft. The minimum interest payment if you want to take a couple $100,000 of equity out. That is big nut to carry every month. So all of that considered, I say, if you're retiring and you want a supplementary income, your CPP, your OAS, your own savings. You maybe have a company pension with your house, how do you do that? Like you're talking to 65, and think you're going to live to 90? How do you make 25 years of income from out of a house?

Cameron Passmore: I have to ask you about reverse mortgages, Rob. I've been doing this a long time. I have yet to meet anyone that's used one, have much experience talking to people about successfully using reverse mortgages.

Rob Carrick: No. It's an interesting point. No, I have not. By the same token, I would say that's a plus and a minus. I haven't heard a lot of complaints. One time, and advisor got in touch with me, and he had a client who had one, and he was aghast at the interest rate. This was back when interest rates were kind of low. Well, that's the cost of reverse mortgage, take it or leave it. But I haven't had a lot of people get in touch with me and say, "I got one, and it was the worst mistake I ever made. It's the kind of product that people don't talk about a lot." This may be controversial, but I don't – it's a product that people with the high levels of financial literacy probably aren't going to get one. People have advisors who have provided good comprehensive advice, so he just probably aren't going to get one. It's like a mystery clientele, these people.

I haven't really heard a lot of anecdotal about them, but I think that a lot of people are rich in home equity and not much else. Why would you not consider a reverse mortgage? It's very expensive, but that's the tool, and that's the rate. It's a way I think of getting yourself out of some financial problems, using what you have, home equity. Yes, you'll get less for the house when you sell, but maybe that's not so bad. Maybe your heirs will have to settle for less, so that you can pull some equity out of this and live a comfortable life. I mean, some people are just rich in home equity. This strikes me, that's a way to turn it into something useful.

Cameron Passmore: And you're shifting risks to another party, so that's going to cost you something.

Rob Carrick: Exactly. You know what, it's like – it highlights this sort of residual conservatism in Canadian regards to their finances and investments, like they're wide open to Bitcoin and all this stuff. But somehow, they won't take a reverse mortgage out on their house. The people in this business, revenues are increasing steadily, the percentages are pretty impressive, but the base remains fairly small. But there are now three or even possibly four players. The fact that we're getting more players, I think that might raise the floor on this thing. We're just getting the word out more. But I think we'll know it's really arrived with some big-name financial player decides to get into this if it ever happens.

Cameron Passmore: Interesting. That you must hear from a number of retirees. Can you give us a sense of some of the non-financial challenges that they face entering retirement?

Rob Carrick: Yeah. In my newsletter, I recently put a link to a piece by a retirement expert who was talking about this feeling that retirees get this realization that I'm not as special as I thought I was. I'm not the hero of the workforce anymore. I'm not like this esteemed colleague. I'm not this respected leader or team member. It's a hard adjustment for hard work and Boomers. It's sort of like, you walk out of this action-packed work life to crickets, and it's hard to make the adjustments, it's hard to fill your time with meaningful activities.

There's a number of people out there who can't wait to leave, and they just embrace it, and they play golf and all that stuff. But if you're not a golfer, or even if you'd like just a bit of golf, that you're used to that work-induced adrenaline, and I can certainly relate to that. Then, it can be a hard adjustment. I think the advice is to think about building a number of components in your life that will help you fill your time productively. So things like physical activity, and getting together with friends, and finding new hobbies, or things to learn about. Let's not forget what I think a lot of Boomers are going to try to do. I don't know if how successful. To me, it's like a phased retirement. Or two or three days a week, be a consultant in your industry. I think that really resonates with a lot of people. It's great for your retirement finances too, because you're drawing down last year of contributing a bit more, to keep your brain active. When people living to 90 and 95, I can easily see a lot of people retiring in their mid-60s and having sort of a five-year runway to full retirement.

Ben Felix: How much do you think retirees should be budgeting for dental and medical expenses?

Rob Carrick: Well, I asked around about this. As read on LinkedIn, more and more, I'm sort of putting questions out to planners and advisors on LinkedIn. Sometimes, I get a lot of good feedback. On this, there was a little sort of mini consensus about $5,000 to $6,000 would probably do it. There was a lot of sort smart ways of thinking about it. Like if you have a plan, figure out what the cost of everything that you – the value of the plan. Talk about health plan through work, and then mark it up by 10% because you're getting – that was one way to do it. Another was factoring in your own personal health. A small minority of employers offer retirement health plans to keep them on the health plan. There's that option as well. But by and large, I think $5,000 or $6,000 would cover it.

If you've got like problems with your teeth, a couple of implants can probably use up that amount in a year. That might be wanting to be more. But it's a good reminder that when you are working, and if you are part of a company health plan, make sure you get maximum dental usage out of it so that when you retire, your teeth are in really good shape because that can be a big money sucked in retirement.

Cameron Passmore: Yes. Those are big numbers.

Rob Carrick: Big numbers. When you're doing sort of a little retirement planning, I've done this in the last couple of years. What am I spending now? What will I be spending in retirement? Can you just basically put this ledger down? Obviously, the big one that comes off is in retirement. I'm not saving for retirement, but that's a big expense for me right now. What is new? Health. But who reminds you about that? If you've had a company health plan for decades, you're just used to paying a copay amount. Okay, $5 on my prescription, $30 on my dental visit. You think dental visits cost $30. In fact, it's hard to even engage with what the underlying numbers are. The dentist I'd go to it could be $300, $400 from a comprehensive checkup, and cleaning, and S&P expense just to come out of the blue twice a year when you're retired.

Cameron Passmore: Speaking of surveys you do, do you have any sense of how many parents are actually helping their kids financially, their adult kids?

Rob Carrick: Oh, 90%.

Cameron Passmore: 90?

Rob Carrick: 90% are providing – well, 92 actually if I'm going from memory are providing some sort of financial help. Now, could even be – they're still on the family cell phone plan for when they were younger, and the parents just kept the plan going. It could be that the parents are paying their car insurance, it could be because they're on some family plan. It could be they're giving them cash every now and then to buy groceries. It could be they're helping with rent, it could be they're helping with home down payments, it could be that they're providing shelter for them. This is the new normal of parenting.

One of the most interesting personal finance stories that I follow is how the cost of being a parent keeps rising, and rising, and rising. The latest entry in my notes on this is the Taylor Swift phenomenon. How many parents are thinking, "I have to get my kids to take us to Taylor Swift"? How much is this going to cost? Well, you try to get the tickets online and you can't get them, and you're thinking my kid really wants it, and parents feel they have to deliver. I wrote a story on, I think the CBC website about some woman who got scammed in Toronto out of thousands of dollars that she felt she had to get her kid tickets.

Now, we can say that, "What is wrong with these parents?" But they feel it. To me, that is a phenomenon. Now, parents feel desperate to help their kids get to a certain level of affluence and success, and they're paying out-of-pocket money to make it happen. So it's like concert tickets for their teens, and houses for their 20-somethings. It's even more basic support, like helping to cover rent, and groceries, and stuff. I mean, there's – I think there's a lot of parental anxiety about how their kids are doing, and how well they're managing the cost of living.

Ben Felix: Do you have a sense of how that's affecting parents retirement savings?

Rob Carrick: I don't. I don't, and I'm really curious about that. I'm really curious to see the home downpayment money that's been handed out. Where did that come from? CIBC Economics did a report about two years ago, and it was so interesting. I mean, phenomenal amounts of money, billions in aggregate have been transferred from parents, to young people, as all this talk about the great wealth transfer. Well, I wonder how much of it has been drained out already, by parents giving downpayment of. I think the average was something like $80,000.

Where does that come from? I mean, there's a lot of high-net-worth families where they can reallocate money, but I suspect that some of it is line of credit money, and some of it is money pulled out of TFSAs and RSP. How will that affect retirement? Well, it's hard to say. It's a very abstract thing. You know, somebody could say, "Well, I'll take one trip a year instead of two, and that will account for this block of capital I took out to give my kids." I think we won't really know. Retirement saving, it's in a state of flux right now, because there's expensive housing, there's this changing mindset of young people that – although they're pretty astute about personal finances, this idea of sacrificing, saving for retirement, they're not feeling it. They're more in tune with short-term needs.

There's that. I'll be very interested to see how well people retire in the next 50, 60 years. I don't think I'll be around to watch it, but it will be interesting. Are people going to sock away? Like the Boomers got it, like they knew they had to do it. Plus, they had all this home equity, and they had rising stock markets. But today, people are very in tune with living in the here and now. I don't want to fault them for that, because there's a lot of reasons why that's so. But it does make me wonder about their retirement, and of course, what's the impact of their parents of having to help their kids. I know a lot of parents have to be thinking. I don't see how my kids ever going to get a house. What can we do to help with that? They will help to their utmost. I think a lot of families are going to be having these conversations because when you look at what incomes are and what houses are, we've had all this economic disruption in the past year or two and it hasn't helped a bit.

Cameron Passmore: Now what about the flip side? Adult kids supporting their parents.

Rob Carrick: Yes, that's happening too. I said a minute ago that I think young people are actually pretty astute financially. A lot of them are thinking, my parents, I don't have a high confidence level that they know what they're doing. So I'm going to open up a line of conversation with them, and ask, and see what's what. In some cultures, as I was mentioning earlier, families live together until the young people move out. But also, in these cultures, it's expected that young people will step in to help their parents if required, and they may live together, they may provide financial support, so that's a big piece of it. But I think there are millennials and Gen Xers now who are realizing their parents maybe aren't quite that well set for retirement, and they're grappling with what can be done about that.

You asked me what people are emailing about. Way, way down the list are emails about, "I'm worried about my parents." Just had an email from someone saying that their parents came to Canada in the early 2000s. They're not entitled to full OAS and GIS. They have a very small CPP and it's not enough. What else? That's an extreme one. but that's one to keep an eye on. Because I think that you can live a pretty, fun life, and then all of a sudden cut to retirement, and money isn't there to keep it going. Then, your kids are looking at you saying, what's happening here, and families will have to solve this, this sandwich phenomenon of supporting your elderly parents and your kids in some way. That's a thing. That is big. The phrase was coined about 10 years ago, but I think it's really coming into its own now.

Ben Felix: So do you have a sense of what adult kids are actually helping their parents with financially?

Rob Carrick: Well, I think some are helping them with cover rent, or, it's almost the reciprocal of parents helping their kids. It's like, what are the big costs? How much do you have? What can you not afford? Let me give you some cash. I think a lot of times, it's just cash. Here, let me help you with the rent this month. You need a plumber, I'll cover that cost. Your car broke down, I'll pay the cost to mechanic, that sort of thing. It's on an ad hoc basis sort of stepping in. And parents helping kids is sort of – we all know it's there. I mentioned earlier, it's not talked a lot about, but kids helping their parents, that's really quite a topic. I put a survey into my newsletter on at 10. The newsletter that I do has a pretty big circulation, and I can get between one and 6000 replies on it. So I'm using it more and more to ask questions that I'm not seeing being answered in other polling.

I put it out in our globe universe, it's a fairly affluent universe, but a lot of the newsletter subscribers aren't globe subscribers, they just read it. So I'm getting a broader selection of people, and it's really helping me understand what's going on, and there's some really interesting things that are happening that aren't really getting a broader attention yet, because, I guess they haven't really created waves that are showing up in the big economic indicators.

Cameron Passmore: Do you think there's conversations that should be happening between those two groups like adults to parents, regardless of which way the support might be going?

Rob Carrick: That's a really good point, Cameron. I do think so. It's almost like you could do a support group. It's like, we're not out there to find fault or to find who's vulnerable and didn't do what they should have. It's like, how are you doing? Here's how I'm doing? What are your thoughts on retirement? What are your thoughts on saving for a house? Maybe it's just exchanging intel on what you're seeing or what successes you're having? And maybe it's on, you're asking for help? Like I see that where we are now, and I don't see it all working out. What could you do to give me a lift? Even if it's advice, because parents have – even if they're not great money managers, they've been through the wars, they've seen everything. I think younger people can really benefit from that. It's not, in my day, this was happening. It's, here's how I got through this difficulty.

We had our mortgage payments surge, like in 1980, I couldn't believe we're paying 20%, and our mortgage payments surged. Here's how we got through it, and here's how quickly it renewed into a lower mortgage, kind of experience is valuable. So yes, I think in familial discussions about money, maybe at all ages, just to sort of compare notes and have a State of the Union discussion.

Cameron Passmore: I'm curious what you would do in this situation. I had a 20-year-old plus or minus family member who showed some interest in financial planning. So I recommended and gave her a couple of books and recommended a couple of podcasts. What would you do to try to engage the younger generation learning about not necessarily investments, but the whole financial planning process and the benefits of that?

Rob Carrick: That's interesting. People ask me that a lot. I'm kind of stuck for an answer, because nobody sort of done like the TikTok version of the basics of financial planning, turn it into something that's easy to digest, fun, delivered in an engaging sort of way. So wide open field, but I think podcasts are the way to go. Because I find that young people really resonate with this way of taking in information just works for them. We do a podcast with my colleague and I, and it's called Stress Test. It's aimed at millennials and Gen-Zers. It's not about financial planning, per se, but it is about finance, personal finance, investing houses, all the costs, and all of the challenges, and all the questions in the mix of priorities.

We've had a really, really good pickup on it. And there are other ones too, other podcasts as well. In fact, if you look at the business podcasts on Spotify or Apple, there's a number of good personal finance ones. Some of them are a bit too tilted towards investing, and what's hot, and kind of in real estate, in Bitcoin, and all that stuff. I would avoid those. But there's a lot on, what are people worried about with respect to money? How are they getting past it? What's working for them? What are the big challenges? What are the pitfalls and that sort of thing?

I find that people who've never read The Globe and Mail stopped me and say, "I listen to your podcast." And they're all young, and it seems to resonate with them. I'm a bit surprised to the extent that's happening, so that would be my recommendation podcast.

Cameron Passmore: That's a good recommendation. It's interesting how quickly, the discussions often go to stock picking, or Bitcoin, or something in some app, without even the basic knowledge of what is a TFSA. What is a high-interest savings account? What is an RSP? What is an FHA? Say like, just the account types?

Rob Carrick: My theory on that is that young people are hungry for financial home runs. They feel like, "I need wealth, and I need it quick. So what's going to do that for me? Oh, Bitcoin, that's going up like 200%. Give me some Bitcoin." Is it GameStop shares that are doing that? I'm piling right into that. Their radar is pinging all the time for something that will give them a jumpstart, and they don't care about the niceties and whether should be in their TFSA, and all that stuff. They want the money and they want it now. That's why they're wide open and all this stuff. That's why some of the content providers are right on that. I'm going to talk about real estate investing, and flipping, and this is a great time to get in on it.

Bitcoin had its moment still out there. But I mean, crypto isn't quite as compelling as it was. But there will always be that sort of thing for young people. I think they feel pressured that I need a house down payment, how do I get it? Well, maybe if I strike at rich investing, I'll get that. And so the other things will fall into line. I mean, they'll learn by doing. But I do think, by and large, some people are pretty, pretty good at knowing the basics, like they understand TFSA. I was just looking at some TFSA contribution data, and I was surprised at the amount that even 19-, and 20-year-olds had in their TFSAs. There's a lot of money flowing into these accounts, the usage of them is pretty good. I think a lot of them have set themselves up with regular plans, because you look at like 20 and 30-somethings, they're all making like 20 TFSA contributions a year.

That means, I'm putting little bits in when I can really smart, like that's like – if I said to you, can you afford 5,000 for a TFSA? You'd say, "No way, man." But if I said, what if you did a bunch of little contributions, you think, "Yeah, that's doable." You're doing that. I think they're doing some really smart things, but there is a hunger for something that will make them a lot of money quick.

Ben Felix: That's what we say too. Makes a ton of sense. I think that's the last four questions, Rob. We're calling this episode The State of Canadian Personal Finance with Rob Carrick, and I think that's exactly what we got from you.

Rob Carrick: Awesome. It was a great chat, guys.

Cameron Passmore: Great to have you back on, so much fun. Thanks, Rob.

Rob Carrick: Thanks, guys.

Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.

Be sure to add the episode number for reference.