Why Canadians aren’t pumped about saving

Study finds a disconnect between our beliefs and behaviours when it comes to retirement planning
Dianne Nice

Globe and Mail

Published on Sunday, Aug. 01, 2010 12:00AM EDT

Saving for retirement can be a bit like trying to get in shape: You need to start slowly, work at it regularly and don’t expect to see immediate results.

But like those fad-diet articles that line the checkout aisles, with their countless tips for losing weight, retirement savings options can be overwhelming. And when your tummy’s rumbling, it’s tempting to just buy a chocolate bar today and put off the diet – or the saving – until tomorrow.

The same psychological barriers that prevent us from shaping up may also be keeping Canadians from bulking up their retirement savings, according to a new report by the BMO Retirement Institute. The report, based on a Strategic Counsel survey of 2,034 Canadians 35 years of age or older, suggests certain behavioural roadblocks, including “paralysis of choice” and “immediate gratification,” are creating a disconnect between what Canadians believe they should be doing to prepare for retirement and what they are actually doing.

Almost 90 per cent of Canadians believe retirement planning should begin before the age of 35, according to the poll. Yet 40 per cent of non-retirees admit they have done no retirement planning at all. The problem isn’t ignorance, says Tina Di Vito, head of BMO’s Retirement Institute. “We know what we need to do, we know when we should do it, we just don’t make it a priority.”

More than eight in 10 non-retirees who have not started saving said they are more concerned about current needs, such as their mortgages and other debts, than their retirement.

This is particularly true for those aged 35 to 44, who are more likely to say they overspend (53 per cent), have debt (88 per cent) and worry about it (25 per cent). Of that group, half said they felt they had fallen behind in their retirement planning, and 44 per cent said they were dissatisfied with the amount they had saved.

“Clearly, this age bracket represents a period when people are buying houses, paying mortgages and raising children, and the thought of diverting funds to retirement takes a back seat,” the report states. “Yet it is also a crucial period of wealth accumulation – a stage of life still far enough away from retirement to permit the magic of compound interest to play its role.”

More than 40 per cent of non-retirees admitted they spend more than they should, saying they wanted the “good things in life.” And more than a quarter said they felt they should “eat, drink and be merry” because they may not live to old age.

Lower-income respondents were more likely to report that they felt overwhelmed by too much information, yet they also said they find pension plans, RRSPs and other retirement savings accounts confusing.

“The idea of starting a regular retirement savings program can be overwhelming for many people,” Ms. Di Vito said.

As with exercising, however, no pain, no gain. Once you establish a routine, your healthy habit can become second nature.

“The psychology of doing something puts you in the right frame of mind and helps to establish discipline,” Ms. Di Vito said. “When you can, increase the amount you set aside. The chances are, if you start something, like contributing to an RRSP, you’re going to keep doing it.”

Canadians falling short on saving

Scotiabank survey finds that nearly one-third don’t have a plan

Published On Tue Jul 13 2010

Madhavi Acharya-Tom Yew
Business Reporter

Ninety-four per cent of Canadians say they feel better when they have a safety net of savings to fall back on.

But nearly one-in-five, or 19 per cent, haven’t put any money aside for a rainy day, according to a survey released Tuesday by Scotiabank.

Personal finance experts say everyone should have an emergency fund that would cover one to three months’ worth of household expenses.

The bank’s survey found that one-quarter, or 25 per cent, of those surveyed have that much set aside. Another one-third have more than three months’ worth, and 23 per cent have squirreled away less than one month of expenses.

Sixty-eight per cent of Canadians say they have a plan in place to achieve their savings goals.

But nearly one-quarter, 23 per cent, say they like to live day-to-day and do not worry about saving money.

“We’re really become a consumer society and we are encouraged to spend. Having the discipline to put aside part of your income for the future or saving for discretionary needs are not things we are necessarily guided to do,” said Chris Hodgson, Scotiabank’s head of Canadian banking.

“There’s an opportunity to raise a level of awareness on how Canadians can build more of a nest egg. To us, this is an issue for Canada.”

Figures from Statistics Canada show that the personal savings rate was 2.8 per cent in the first quarter of 2010. That’s down 0.7 per cent from the last three months of 2009 and a decline of 2.4 per cent from the previous year.

Scotiabank released the survey as part of the kickoff to its Let the Saving Begin program. The goal is to “break the inertia around saving and help spark a movement among Canadians,” the bank said.

It has recruited broadcaster Valerie Pringle to travel across the country to speak with Canadians about the challenges they face when trying to put money aside.

“It’s like we’ve been living in a fool’s paradise of cheap money and buy, buy, buy, and our grandparents concept of saving to buy a refrigerator sounds like something from the dark ages,” Pringle said in an interview.

“There’s a lot of pressure on people, on families, and their wallets. We want to make Canadians aware that small steps can make a difference. Figure it out, get some advice, make changes and make yourself more financially healthy.”

Nearly three-quarters, or 72 per cent, of Canadians surveyed said that saving an additional $1,500 would improve their financial well-being.

“That’s about $4 a day. It’s not a huge amount,” Hodgson said.

Scotiabank will match 10 per cent of savings up to $150 accumulated between July 5, 2010, and Oct. 31, 2011 using automatic savings plans. Details are available on the bank’s website.

The online survey, conducted in late March, also found that the majority of Canadians, 83 per cent, said they would make some change to their spending habits to save more money, with 20 per cent saying they would make large changes and 63 per cent saying they would make small changes.

“We’re talking about creating a balance between borrowing and saving,” Hodgson said. “We’re not suggesting Canadians should be moving away from borrowing to buy a house or a condo or get an education, but there has to be a balance between the two.”