Why People Like Me Aren’t Saving Enough

Nearly one in six Canadians couldn’t manage a $500 increase in their monthly mortgage payments, according to a recent BMO Wealth survey. That’s a bit worrisome, you might think. Don’t these people know how to budget and plan for the future? If their financial situation is so tight, then how are they saving for retirement?

It’s simple: many aren’t. In fact, 58% of Ontarians without workplace pension plans saved nothing for retirement in the last year, according to a Healthcare of Ontario Pension Plan poll.

Here’s the unfortunate truth: A lot of people—even those making decent salaries—are living paycheque to paycheque. Despite Canada’s relative wealth by global standards, many Canadians are credit-rich and cash-poor, struggling to maintain lifestyles that are really beyond their means.

There’s certainly an element of “keeping up with the Joneses,” but the lack of long-term savings isn’t entirely their fault. There are many reasons people don’t have the cash flow.

For example, people like me with full-time jobs and young families to support are forking over huge sums of money for childcare—sometimes in excess of $25,000 a year. Not only that, we’re balancing the need to save for retirement with the looming threat of hefty university tuition fees not that far down the road.

Plus, when it comes to planning for the future, most people just aren’t very good at it. Just 30% of capital accumulation plan (CAP) members in Benefits Canada’s 2014 CAP Member Survey have a formal, documented financial plan outlining at what age they will retire and how much they’ll need to save. And, if you think about it, that lowly 30% is among people who’ve already bought into the concept of saving for retirement, since they’re contributing to a workplace retirement savings plan. What about those who haven’t enrolled in their plan or don’t have a plan at all?

It’s a complicated problem with no easy solution. Will the Ontario Retirement Pension Plan help? Would expanding the Canada Pension Plan be a better option? When people have conflicting financial priorities, education and communication alone will never be enough.

If you had to decide between saving for a seemingly far-off retirement or paying your kids’ daycare expenses today, what would you choose?

3 thoughts on “Why People Like Me Aren’t Saving Enough

  1. Lizann Reitmeier November 6, 2015 - Reply

    Great blog, Alyssa.

    I will always choose food (mostly chocolate) and shelter first! Planned systematic savings directly from payroll, before it gets into the cash flow stream is a reliable way to save. Even a little adds up to a lot over time. Don’t get me wrong, I know it is not painless. Will the ORPP help? It is one more way to help people take care of their needs in their senior years, however with average earnings in Ontario at just over $49,000 (workopolis) CPP is meeting the goal of putting away about 10% for retirement. Is there anything left to save?

  2. Christopher Cartwright November 11, 2015 - Reply

    Insightful and provocative, Alyssa!

    One thing that gets overlooked is the deliberate and expert effort by every profit-making corporation out there to try to separate us from our money. Will Rogers said it well:

    “Advertising is the art of convincing people to spend money they don’t have for something they don’t need.”

    Whether it’s a bank pushing a HELOC or increased credit card limit or a supermarket placing the sugary treats for kids at their eye level or enticing adults with tasty free samples, they are all after a share of our wallet. YOLO and BOGO take precedence over RRSP, DB and DC for all of us who are defined as “consumers.”

    ORPP and expanded CPP will help, but are far from a complete solution.

    Better financial literacy is obviously desirable, but better financial habits are essential. If we could live for one year the lifestyle of our parents or grandparents, we would realize how well off we really are!

  3. ALEXIA DAVIS December 18, 2015 - Reply

    I agree with Christopher and Lizann on some of their points, it’s too bad I live in Jamaica or I would have more insight to the financial tension that is in Canada. Regardless, here in Jamaica, it situation is quite similar. People just aren’t saving towards retirement and even if they are, it is through the company in which they do so, but keep in mind not all young people will stay in the company long enough to reap the rewards of a pension fund.
    The financial choices we make sometimes ends up being the ones that hurts us the most. For example, getting a credit card. I often wonder why most of us were “credit rich and cash poor?” I think it’s always best to save your own money and try as much as possible to stay away from credit. But the government (in some countries) force people to get credit cards in order for them to take the next step into life such as buying a house.

    There is no real one solution for everyone, everyone financial situation is tailored differently.
    My advice: don’t follow the YOLO and BOGO and all the hype about being young and living in the now. Think of the future and put aside as much as you can for a rainy day.
    Old Jamaica Proverb: Every mikkle mek a mukkle
    Translation: Every little makes something .

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