I’m excited to introduce this Diversation, where I chat with Esther Kamunya, a financial advisor who works with families and small business owners to help them visualize short, medium and long-term financial goals. She is passionate about helping people build a roadmap to financial freedom.
Financial stability is crucial for everyone – and especially for marginalized communities who have historically been denied access to ways of accumulating intergenerational wealth. According to a study by the TD Bank Group, Black Canadians are more likely to be paid lower incomes and yet face higher levels of debt compared to the general population. Additionally, Black Canadians are less likely to be granted access to financial resources and services. There are many systemic infostructures that are designed to keep the cycle going from generation to generation.
For this reason, I was eager to chat with Esther Kamunya, who works extensively with Black Canadians and is experienced at helping individuals and families overcome challenges and achieve financial stability.
I opened our chat with an obvious question:
For Esther, it comes down to numbers. “A Canadian study shows that families who work with a financial advisor come out over four times wealthier. Four times! Just for that reason, it’s a no-brainer.” And as Esther points, out, in every other domain of our lives, we seek out experts, whether doctors, realtors, or car mechanics. A financial advisor has specific expertise and can look at a person’s finances through a big-picture lens, then help them set and reach their financial goals.
There’s a big difference between a financial advisor and a salesperson. When you apply to a bank for a credit card, the customer service agent will offer you products. When you deal with a realtor or mortgage broker, their goal is to sell products. When you visit a car dealership, the salesperson will focus on selling you a car. But a financial advisor is different. A financial advisor doesn’t just look at one, immediate transaction. Rather, the goal is to build a relationship, so they can find out about you and help determine your needs.
The first difference you’ll notice right away, Esther says, is that a financial advisor asks “way more questions.” You’ll notice, too, that a financial adviser doesn’t lead the conversation by talking about products. Instead, they ask what your goals are, how your cash flow is, what your net worth is, and where you want to go.
Generational Wealth
For many minority groups, and especially Black Canadians, there continues to be a shift from thinking about individual wealth to thinking about intergenerational wealth. But day-to-day expenses can be so overwhelming that it’s sometimes difficult to think beyond the present tense. Some people may feel hopeless about the prospect of putting away a significant sum of money – and as a result, they may not even start saving. Any amount of money, no matter how big or small, towards saving and/or investing is significant.
Invest in Your Kids
Esther’s second piece of advice is to invest in your kids. “I’m traditional, so I believe having a good foundational education for your kids is one way to create generational wealth. In Canada, there are good ways to invest in kids’ education.”
Retirement Investment is Crucial
Karl Parris, Jr. (Tamisha’s father), explains his journey to finding a clear path to transitioning from living with a full-time salary to living on savings. He hopes that telling his story will help inspire others to start setting their own retirement goals and planning for a sustainable financial future.
And third, Ester advises investing in retirement income as soon as possible. Investing in retirement income can ensure that, when you’re older, you’ll be taken care of, which will minimize your children’s financial burden. “I know that from experience, because I have to take care of my parents at home because they don’t have enough.”
For people who are tempted to go all-in with life insurance in order to ensure a pay-out for their children when they die, Esther encourages them to reconsider. “I always ask them, if you put all your money into life insurance, and you don’t have retirement income, what do you leave now, if you don’t die? You’re more likely to live a long life than you are to die – so let’s plan for both.”
A financial advisor brings a big toolkit when it comes to future planning. Esther is fluent in financial acronyms, which can be helpful when people feel overwhelmed. I asked her to decode the available options, starting with education savings funds for kids.
If a family has enough money to invest, Esther encourages them to take advantage of the Canadian government’s Registered Education Savings Plan (RESP). ”It’s a really good plan because, for every dollar you put into that plan, you get 20% from the government. I call it free money. Because really, where can you put money and get a 20% return right away?” If parents are able to start when their kids are young, that money will compound for years. (For a dramatic illustration of how compound interest works, check out this compound interest calculator.)
Parents can contribute up to $2500 per year per child (about $208 per month). And if they’re getting a late start with an RESP, parents are allowed to double that yearly contribution to catch up.
Even if the kids decide not to pursue post-secondary education, the savings will be there. While the government will rescind the 20% it originally invested, parents will still reap the interest from both the money they put in and the government’s contribution.
Another investment vehicle Esther likes is the Tax-Free Savings Account (TFSA). It’s a tool Canadians can use to save money without paying tax on the investment earnings or growth within the account. The contribution limit for 2023 is $6000, but if you haven’t contributed the full amount in previous years, you can carry forward your unused contribution room. A TFSA can hold a range of investment options, such as stocks, bonds, mutual funds, and savings accounts.
And then there’s the Registered Retirement Savings Plan (RRSP), a savings account that allows Canadians to contribute 18% of their yearly income, tax-deductible. This can reduce the amount of income tax they owe. Like TFSAs, RRSPs are flexible and can hold a wide range of investment options. Check your income tax return to find out your contribution limit, and keep in mind that if you haven’t contributed, you can contribute extra to catch up.
How important is it to get started?
“It works best from day one,” says Esther. “The longer the time, the more growth you will see… Time is so important in investing.”
But for many people, money is less abundant when they’re young and in the throes of early parenthood. What can they do to ensure they have wealth in the future?
Esther says it’s common for people to think they don’t have options. “Let’s say I meet a couple who are young, with kids. They’re renting. If you do the math, owning your primary residence instead of renting is an advantage… I have been able to help my clients see that the money they spend on rent is almost enough to pay a mortgage.” If they can strategize and get into the housing market – even if the house isn’t big – they’ll have equity. The home will appreciate in value over the long term, which contributes to generational wealth. Most importantly – they’re not paying someone else’s mortgage with rent money; they’re paying their own.
“This is the power of leveraging,” says Esther. “With leveraging, you piggyback on someone else’s resources. When you qualify for a mortgage to buy a $300K house, you don’t have to have that $300K. But you don’t have to wait to have it either – you can leverage off the bank. Yes, it has a cost, but that cost is worth it.” And your financial advisor can help you use tools such as your RRSP to get first-time home buyer tax advantages as well.
For these reasons, Esther considers mortgage debt “good debt.” While debts such as credit cards and car loans have few benefits, she encourages homeowners to understand their mortgage as a benefit and not try to accelerate paying it off. Many people stress about mortgage debt and try to speed up their payments, when they could be generating tax-free savings by putting their extra money into their RRSP.
This is the kind of advice that comes naturally to Esther – but it’s certainly not obvious to all of us. Who hasn’t been tempted by a do-not-pay-until-next-year credit card offer, or an investment scheme that promises quick returns? Who hasn’t
struggled to save 10% of our earnings based on the advice of a talk show host or online influencer? But as Esther points out, plenty of people find themselves scraping to save money that generates a tiny amount of interest, all the while paying onerous credit card interest and not realizing they’d have more money if they paid that debt down instead.
In her conversations with clients, Esther says it often comes down to compromise. “It’s more scary to have debt than to not have savings. We clear the bad debt – usually credit cards.” She also helps people with unfavourable mortgage rates; by paying down debt, they build their credit ratings and then qualify for better rates. It’s not always apparent what the best strategy is, which is why Esther encourages people to seek out a qualified financial advisor to help them.
She acknowledges that low- or no-interest deals can sometimes be a good thing. “My husband and I have used those opportunities. You get a rate of 0% interest for a year, but you really have to be on top of things… You need a game plan to deal with the debt when it comes due.”
One of the greatest benefits a financial advisor can provide is helping people make good choices. Often, this doesn’t mean giving things up. It just means being strategic. For example, let’s say you take money out of your savings to buy furniture or go on vacation. “Not a good idea,” says Esther. “But if you took that money and caught up on your TFSA or RRSP contribution to get a tax refund, that’s a powerful idea… because you can invest and you can actually write off the interest in your taxes… Use your tax refund to go on vacation or buy furniture.”
Besides mortgages, are there any other good debts?
“I am a fan of student loans,” says Esther. “The interest is so low… And right now, something awesome has happened – I don’t know how long it will last. The federal loan, right now they have removed interest from student loans. Zero interest.” Even parents who’ve saved money to pay for school should take advantage of student loans. While they’re paying down those no-interest loans, those previously earmarked savings can generate interest.
Another type of loan Esther endorses is an RRSP top-up loan. “Every year you’re allowed to put in 18% of your income. Let’s say you contribute monthly for a total of 14%. You can borrow the other 4% and top up to get to 18% and pay that off throughout the year. The tax break you get could clear that top-up. Isn’t that cool?”
For many people, the idea of getting a loan in order to save is counterintuitive. But Esther reminds us that this is why a financial advisor can be so valuable. It’s this kind of advice that can nudge people into savings and investment choices that net them four times the returns enjoyed by people who don’t seek out a financial advisor.
What about people who are concerned about paying a financial advisor’s fees?
“The cost of your time and any little expense… is nothing compared to what you’ll get in return,” Esther says. “Having said that, a lot of people, especially in the Black community – people who are not making money – feel they don’t have the money to spend to seek out a financial advisor… However, you can usually find one who doesn’t charge for planning.”
People tend to be risk-averse, but Esther has found that risk aversion is highest among people who don’t have much money. Gradually, as they work with her, they become more comfortable taking small, strategic risks – and these are the people who make money over time. And there’s no one in a better position to mitigate risk than a good financial advisor.
A financial advisor isn’t someone who’s focused on selling you a product. A financial advisor gets to know you so they can provide you with personalized advice that will help you reach your goals.
There’s no better time to get started than now. Even if you feel you’re behind, you will benefit from sitting down with a financial advisor, setting some goals, and finding out what you can do in the time you have before retirement.
Take care of yourself first – it’s the best way to ensure you have wealth to pass on to your children.
Use government resources and tools to maximize and leverage your savings.
A financial advisor can help you mitigate risks – and this often means bad debt.
Some debt is good – who knew? A financial advisor can steer you toward it.
See how much interest you can earn on your investments over time with compound growth, and calculate the total value of your investment over time to see what it will take to meet your investment goal.
Get a quick and easy estimate of your 2022 taxes using our online tax calculator.
Plus, find everything you need to prepare to file your income taxes.
This calculator can be used to estimate the monthly loan payments on an RSP (including deferred payment options) or a TFSA loan.
It is always best to pay off your credit card balance in full by the due date indicated on your statement. If you can’t, you can still reduce the amount of interest you will have to pay.
