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Why People Like Me Aren’t Saving Enough

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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?

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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?

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