6 personal finance tips for new Canadians
Immigrants need to make sure they understand the idiosyncrasies of Canada's financial system
Besides the challenge of settling into a new home and culture, immigrants to Canada face a host of issues when it comes to getting their financial lives in order and planning for their retirement. But there’s one thing Canadians all have in common: the sooner we start investing in our financial future, the better.
Statistics show Canadians on the whole only contribute about 6 to 7 per cent of the maximum they’re allowed to their RRSPs every year.
While nobody seems to track the data on new Canadians specifically, there’s ample anecdotal evidence to suggest the numbers for immigrants are even lower.
"Immigrants have other priorities when they come here," says Monica Linares, a financial advisor with Sun Life Financial. "They left everything in their country, so they have to start again to build another life."
Linares knows of what she speaks. An immigrant herself, she came to Canada as an industrial engineer in 2001 and has worked as an advisor with Sun Life since 2005.
A Colombian by birth, Linares estimates as many as 90 per cent of her clients are Spanish speaking. She offers comprehensive advice covering all aspects of her clients' financial lives – everything from banking and insurance, to RRSPs and retirement investing strategies.
Much of her work, she says, involves advising her clients on the options available to them under Canada’s system. While some have come from countries with extensive social safety nets, others come from a background where there is mistrust of government-backed retirement and social welfare programs.
Explore the options
Margaret Yang agrees there are cultural divides that new Canadians must bridge. A financial advisor with Edward Jones in Mississauga, Yang says about 40 per cent of her clientele is comprised of new Canadians.
Born in mainland China, Yang herself came to Canada in 1998. She says she spends a lot of time simply educating her clients about the options available to them. Many immigrants who come to Canada as professionals have a lot of assets at their disposal, so often the meetings are about deciding how best to put those funds to work.
Often, new Canadians need to get up to speed on concepts that people who grew up here take for granted, such as registered retirement savings plans.
"With RRSPs, we don’t have to educate our local clients about them as much," Yang says. "But with immigrants, we need to spend some more time letting them know about the tax benefits."
Sun Life financial advisor Audrey Chiang came to Canada during the wave of immigration from Hong Kong about 30 years ago. Back then, the more moneyed investors were most interested in GICs, and in any sort of safe investment. "As you know, Asians are the best savers," she says with a smile.
But now that interest rates have moved lower, the return on guaranteed savings products is negligible, so her new Canadian clients are starting to swing more towards stocks and bonds and mutual funds in their RRSP preferences.
"I wouldn’t say they don’t like RRSPs, they just need to have it explained to them," Chiang says. "New immigrants don’t mind putting money into an RRSP, but their knowledge [of their options] isn’t always great."
Investing in a turbulent time
Someone who’s recently come to Canada may find it harder to come to grips with an investment strategy these days simply because they haven’t lived through the ups and downs of bull and bear markets. The market turmoil adds an additional layer of complexity for those who are trying to familiarize themselves with new investing rules.
"In my personal experience," Yang says, "their emotional swings are way bigger because they’ve never been through the market cycles."
The advice from the experts is to try and look at financial planning through a logical rather than an emotional lens.
Dealing with the downturn of 2008 was hard for all investors. But it’s especially difficult for anyone who wasn’t around for the bull market that came before that. It’s not just deciding on the right asset allocation, there’s a lot of handholding involved, Yang says.
Finding someone who speaks their native language can be a huge benefit for people dealing with new financial concepts.
It can take a bit of hunting depending on a person's country of origin, but one of the benefits for newcomers is that Canada is a culturally diverse nation. If asked, larger financial companies in particular often have people on staff who speak a language a customer is comfortable with.
"I speak and write perfect Mandarin. I’m able to communicate so there’s no confusion with regards to the terms," Yang says by way of example. "My clients feel more assured and comfortable that way."
Setting long-range priorities
In many cases, new Canadians come to Canada in search of a better life. So in the early years, family cash flow is often channeled primarily into building new businesses and paying rent, or saving for a home.
Tip for wealthy new Canadians
Canada allows immigrants to shelter their financial assets tax-free for up to five years in an Immigration Trust. Newcomers begin to pay tax on the investment income from the trust only after five years.
The advantage of this is that new Canadians get some extra time for their savings to grow.
The disadvantage is that it only makes financial sense for people with major assets, since it generally costs tens of thousands in legal and financial fees to set up a trust.
There’s often little time or money left over to think about the far off goal of retirement. But ignoring long-term investment planning is a mistake, according to financial experts.
"People aren’t used to having to plan for the future," Linares says. "Some people come and think the government just takes care of everything."
Chiang agrees. "It’s our job to explain there’s no free lunch in Canada," she says, because some new Canadians have the mistaken belief that programs like OAS and CPP mean saving isn’t important because the government will cut you a fat cheque in your retirement.
"They need to have the RRSP system explained to them, and then they jump on board," Chiang says.
Time is also an investor's greatest ally. Small steps taken early can have a bigger impact on a person's retirement savings than big efforts that don't get started until closer to retirement.
As is the case for anyone, the sooner new Canadians start to think about these issues, the better off they generally are in the long run.
"It’s easier to come out ahead when you start younger, so I try and encourage my clients to put some money away, even if it’s just a little bit," Linares says.
After all, whether they’re citizens, landed immigrants or not, anyone who works and pays taxes is entitled to contribute to an RRSP, under the Canada Revenue Agency’s rules.
Still, the most recent Statistics Canada figures suggest there’s more than $500 billion in unused contribution room – a sign Canadians of all stripes aren’t using all the tools at their disposal.
"People are living longer into retirement than ever before," Linares says. "We need to start planning for that."