The No. 1 risk in personal finance for the next year is that high inflation and rising interest rates give way to a recession.
Things really get interesting after that. The accelerated pace of change lately suggests we will not have a period of financial calm where there’s opportunity to reflect and regroup. Other threats to your financial well-being are out there and likely to become more concerning. Let’s look at three of them:
The health care system
Our health care system too often cannot provide timely care. We will not get this fixed without it costing us more.
One possibility is that more leeway is created for private clinics, where those with financial resources can get faster service than people relying on the public system. An advocacy group called the Ontario Health Coalition says the cost of cataract surgery at a private clinic can range $1,000 to $5,000, with additional consulting fees. Even if a strict line is taken against two-tier health care, there could be more services and treatments delisted from coverage by provincial health care.
“The reality of what medical care may cost in the future, even if you have a health plan, may not be fully factored into your current retirement plan,” Jackie Porter, a certified financial planner (CFP) with Carte Financial Group, told me in an e-mail.
A thought from Ms. Porter on paying for your own health care: Fill up your tax-free savings account. Withdrawing funds from a TFSA will provide 100 per cent tax-free funds to pay for medical costs, while withdrawals from registered retirement savings plans and registered retirement income funds are fully taxable.
Climate change has negatively affected property owners for years, whether through rising home insurance premiums or through costs paid yourself to fix weather or water-related damage to a home. Hurricane Fiona’s impact on Atlantic Canada is a fresh reminder of climate risk to people and property.
Now is the time to consider a more climate-centric approach to home ownership. You know how property listings on Realtor.ca score houses for their proximity to schools, shopping and more? It’s time to add a climate score that considers how close homes are to flood zones, how well defended they are against water damage, the climate friendliness of heating and cooling systems, and the level of insulation. Until this kind of scoring arrives, home buyers should create their own climate checklist.
In the basement, look for sewer backup valves and sump pumps. Look for proper insulation in the attic and walls, for high efficiency water heaters and furnaces, and heat pumps as well. Gas stoves are great for cooking, but they’ve not climate friendly. Look for electromagnetic induction stoves, which are more energy efficient.
Climate considerations also affect the choice between living in a condo and a house. Homeowners can make their own decisions on whether to add solar panels, heat pumps and charging stations for electric vehicles, while condos need broad owner support. Rising insurance costs will put upward pressure on condo fees.
Unaffordable urban living
Toronto and Vancouver are affordability deserts for young people, and some nearby cities are headed in that direction. Home buying is out of reach unless you work in a high-income job or have parental financial backing, and rent increases are staggering. One-bedroom apartment rents were up by double-digit amounts in August versus the same month last year in 17 of the 35 markets tracked by Rentals.ca.
Remote work has peaked as a trend, so moving to the suburbs and beyond for cheaper housing offers only limited relief. Meanwhile, big cities are the country’s economic engines and thus the place to be for building many types of careers.
The best defence against expensive urban living costs is to go on the offensive in boosting your income. Ask for a raise – employers across the country are building raises for workers into their budgets. Or, find a new job. Retiring baby boomers are leaving gaps that employers need to fill.
Otherwise, Gen Z and millennials have a tough choice to make between sticking it out in the urban affordability desert or looking to locations where it’s easier to strike the balance of saving, spending and enjoying life.
Parents of these young adults, do not close the books on financial support for your kids. I had an enquiry from a reader recently that sets a tone: He wonders about taking money from his home equity via a reverse mortgage to give his adult kids money for retirement saving.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, September 28, 2022