Shocking, isn't it? Young Canadians are thinking little about their golden years and the importance of diligent financial preparation. Would that we, the wizened and wise, could be so unconcerned. And optimistic: according to new report, young Canadians believe they'll be fit to retire by age 60 though they're doing next to nil to prepare for it.
A just-released BMO retirement report takes a kick at that optimism. While young Canadians may be aware of the need for retirement planning, it says, they're putting their retirement at risk by not considering how much money they will need and are often delaying saving for retirement.
The report, dubbed "Broadening the approach to preparing for retirement", examined attitudes on retirement among young adults (between the ages of 18 and 34). Among the findings, only one in 10 young adults have thought a lot about how much money they will need to save for retirement and almost a third (27 per cent) admitted they have not started saving for retirement.
However, on a more positive note, the majority (82 per cent) of young adults surveyed believe retirement planning is important, with more than half (52 per cent) owning a Registered Retirement Savings Plan (RRSP) and 36 per cent having a Tax Free Savings Account (TFSA).
"So many young adults expect to retire early, before age 60. Forty-one per cent said they want to retire by that age. That's a surprise considering that as many as a third admitted they haven't started saving for retirement," remarks Marlena Pospiech, retirement strategist and senior manager at the BMO Retirement Institute in Toronto. "The disconnect probably comes from people making their own assumptions and not taking the time to educate themselves sufficiently on what it means to plan for retirement."
But to be fair, there are factors that are hindering youth's progress in establishing themselves financially including poor post-economic recession job prospects, rising student debt, and lower wages. Pospiech acknowledges this and she adds it's not uncommon for the 18-34 demographic to have retirement planning low on their list of priorities.
"It's human nature to spend what you make and for the younger generation, retirement seems so far away it seems like an eternity," she says. "Their priorities are shorter-term goals. But one thing that works well for young adults, is to perhaps use their language and make retirement planning more relevant to them by talking about shorter-term goals."
In fact, some might suggest post-secondary and graduated young professionals should delay investing in an RRSP due to the lousy interest rate environment of the day amongst other things.
"Think about where you want to spend your money. Unless those include buying a house or using the money for secondary education because there are plans within RRSPs to borrow the money to do that, it may not make sense to increase your contributions to your RRSP," says Bob Stammers, CFA, director of investor education, CFA Institute in New York City. "You're not going to be able to get that money out if you need it and if you do take it out, the penalties are quite significant."
Meanwhile, the BMO Retirement Institute report also found that role models are critical to helping young people think differently about their financial future.
Parents can be effective financial role models by demonstrating sound financial management and savings habits along with involving their children early in the process, the report reads.
"Parents play a critical role educating their children … one of the aspects of that is financial education. Sometimes that's missed because as parents we want to help our children and there's a tendency to bail them out when required," Pospiech adds. "That doesn't necessarily help youth down the road. Sometimes it makes more sense to get them to contribute even towards household expenses once they begin to work if they're still living at home."
Parents may wish to consider the following BMO tips to help boosting their offspring's financial literacy:
*Involve kids in their teen and pre-teen years by talking to them about saving and setting financial goals. Open an RESP for them, make regular contributions and teach them about the power of compound tax-deferred growth.
*If adult children are working but living at home, discuss their financial contribution towards general household expenses; perhaps even charge them rent. Consider investing that money in a separate account and then surprise them with a monetary gift at a later date to use for their wedding or for a down payment on a home.
*Instead of using words like "retirement planning," use phrases like "save money for tomorrow" and be aware that these discussions will increasingly need to take place using their preferred channels of communication such as smartphones and social networking websites.