Many of the challenges in life can be resolved by the process of time, some are created instead. While the do nothing philosophy can work on certain challenges, investing and saving are not one of them.
It has been my experience that Canadians end up doing themselves a financial disservice at times and can be aided and abetted in this by certain Government actions. Many times the actions are well meaning but can have unintended consequences.
Canada Pension Plan
Early in my career I observed the effect of Canada Pension Plan. Surely we all realize the lack of real financial merit with CPP? You would have thought this was readily apparent, yet over the years I have seen client after client use CPP as a fairly central and important aspect of their retirement planning. In denying the reality, they were able to postpone saving in favour of greater current consumption and maintaining priorities that reduced retirement savings.
Registered Retirement Savings Plan
I also noted that Canadians will only tend to act when a deadline approaches. Use it or lose it will cause many of us to act. This could be seen in the long lines of people putting funds in RRSP’s to meet the Feb 28 deadline each year. During this last week of the “RRSP Season” we used to work regularly to midnight to make sure we got the funds in and the tax receipts issued. There were two motivations, one was the tax deduction and the other was that if you did not use the deduction, you lost it. There was no carry forward.
Seeing this problem, a benevolent Government changed the rules. You could carry forward unused deduction room for use in a later year. In my opinion this very action has resulted in further procrastination. We do not lose the deduction and can use it next year, “taking away the pressure or need to act now.” So, as a nation we took comfort in this and have reduced our usage of the RRSP deduction. Gone are the long last minute lineups and the “round 2 it” has taken over.
The kindness of Government has resulted in an unintended consequence, we are saving less. Not a good result. How much RRSP contribution room have you built up? Yet, we tend to applaud Government for their kindness and wisdom in this regard. A little like parents letting the kids have the car with no deadlines or rules.
Tax Free Savings Account
The TFSA (tax free savings account) rules have also been made flexible enough that general procrastination rules here as well. Have you setup your TFSA? I thought so!
Now I am not an advocate of tightening the rules. Personally I have fully utilized both programs and do not need the extra kick in the pants that a deadline would impose. However, I sense this is because I am a financial planner, accountant, and focused saver since I was schooled in the ways of my Scottish Grandmother by her admonitions about taking care of the pennies and the dollars will take care of themselves.
This does not, however, prevent me from lamenting about the general level of non-saving and lack of focus present in the general populace. Relying on future government largesse is the height of financial planning folly but I am at a loss as to how to help Canadians get motivated. Other than writing and speaking aloud in the faint hope that those that really need to read this will get motivated. Not holding my breath.
There are ways to get started almost painlessly, but getting started is the challenge.