For some, it is the most wonderful time of the year while for others, it is a time of stressful worry and silent fretting. Media channels depict merry-goers rejoicing and spreading good cheer, but they fail to show the worry many experience after all the gifts have all been unwrapped and the stress of uncertainty sets in -- will there be enough money to cover the costs of all the holiday purchases?
How much do we spend this time of year?
According to CPA Canada, Canadians, on average, spend $766 on holiday gifts. Many spend well over $800 and too few set aside funds to cover their holiday purchases. As per CPA Canada, 61 per cent of those surveyed did not budget for the season.
Making the most of buyer's remorse
After the merriment of December dissipates, January's cold reality makes it stark appearance with the arrival of the previous month's credit card statement. Once the decorations are put away and the holiday parties are over, the season's frenetic pace is often replaced with pangs of guilt associated with buyers remorse. We ask in disbelief as we painfully peruse our credit card balance. "Did I really need all that stuff?"
Given many are faced with paying off holiday debts, it may seem like there couldn't be an appetite for information about debt management or ways to save more. For employers, the new year creates a prime opportunity to reinforce messages related to financial education, budgeting and debt management.
Employer Matching -- don't leave money on the table!
Consider January as a month to dial up pension plan communications and reinforce the value of "free money" employers offer through employer matching. Messages that remind employees about ways to harness the full value of their employer's matching contribution arrangement demonstrate the employer's role in helping them save even more.
Just-in-time communications can create a powerful impact especially at a time when employees might feel more confused or stressed about their financial situation. For many, January is seen as a new beginning offering a clean slate. Why not use it to help employees develop healthy saving tactics as part of their new year's resolution? Consider introducing financial education sessions early in the year that address ways to pay down debt while explaining how it is possible to also participate in the company's pension and savings plans.
Seek feedback about your benefits program
As workforce demographics shift from being heavily weighted with Baby Boomers to the now burgeoning influx of Millennials and Generation Z (those born after 1995), consider soliciting feedback from these cohorts.
- What is it that they really value from a benefits program?
- Are they worried about how long it will take them to pay off student loan
- Are they even remotely interested in saving for retirement or does that seem like so far off in the future that it isn't even on their radar?
- What do they know about the current programs?
Surveys show that when employees are stressed about their finances, they are more distracted at work, take more time off to deal with their financial concerns, and are absent more because of stress-related issues.
Don't assume employees know the details of what is offered in the benefits and pension or savings plans. For example, employee assistance programs that offer financial counselling might come in quite handy as the bills roll in, but how many employees know that this service exists?
Prevention is key. Provide financial education even if the need for it isn't discussed openly around the water cooler. Talking about money woes may be considered rude or even a social taboo. In fact, a survey by Fidelity reported that 43 per cent of respondents didn't know how much their spouse earned and 36 per cent weren't aware of the amount they had invested.
Employees may prove to be more willing to share their interest in financial education via an anonymous survey than they would discussing it directly with their manager or in a team setting. Look for ways to share what's available to them through their pension and savings plans as well as other free community resources. There is no downside to making available information that reduces stress and allows employees the ability to more fully focus their attention on giving their best at work.
For more ways to promote financial literacy, pension and savings communications, we invite you to contact us. We're here to help so that you can focus on what you do best.
With all the discussion about the need for enhancements to CPP, the reason behind it is the motivation for this blog topic. It is widely believed that many Canadians struggle with financial literacy and don't take an active role in effectively managing their finances or saving enough to meet their retirement needs.
What is surprising is that Canada's average debtor may not be who we think. New data released by Statistics Canada and highlighted in the infographic associated with this post, suggest that those most in debt are well educated and think of themselves as quite financially literate. They aren't those with low income or little education. The data reveals that they understand the debt they have taken on and they believe they can afford to pay it off.
Canadian debt is on the rise with savings not in a place that has the feds or the provinces feeling that they couldn't help but intervene in the form of forced savings through the CPP enhancement. With November being Financial Literacy Month (FLM), it is an timely opportunity to remember that it is never to early to start discussions about the importance of money management and what financial preparedness entails.
When considering the money landscape, it has been reported that 1 out of 3 Canadians struggle to keep up with their finances and when we zero in on youth and money, 60% of youth report carrying some debt and one third owe more than $10,000. Credit card debt and student loans are the top two categories for Millennials.
The Financial Consumer Agency of Canada (FCAC) has a national strategy to help Canadians become more aware of the importance of financial literacy. They are inviting us to join the conversation on social media using the hashtag #CountMeInCA to share tips and to tell them what we're doing or what resources we're using to manage our money and debt responsibly as well as how we're saving for the future.
The FCAC offers a 4 step process for improving financial literacy:
1) Take the self assessment quiz. This short and free quiz helps to test one's financial literacy skills and reveals how you compare to other Canadians based on their responses.
2) Search on the Canadian Financial Literacy Database. It holds a range of financial topics related to budgeting, money management, saving, investing and more.
3) Take action and build a financial literacy "to do" list.
4) Participate in Financial Literacy Month.
Learning more about financial literacy and creating breathing room to save for the future starts with gaining knowledge and confidence through good money management and a strategic approach to debt reduction. With so many Canadians struggling to make end meets with pressing financial obligations, the idea of saving for the future often doesn't seem like a realistic priority.
As with anything that seems too much for one person to manage alone, seeking help and guidance with financial preparedness is no different. The FCAC website provides a list of questions to ask when looking for professional advice.
We're ready to answer your questions. For over two decades, we've been helping companies with their retirement savings programs along with ways to improve financial literacy in the workplace. We invite you to contact us. We're here to help so that you can focus on what you do best.
*source - Finance Consumer Agency of Canada
Following the ebbs and flows of the Baby Boomer generation (born between 1947-1964) can be an interesting and insightful experience whether you are of this generational slice of the workforce pie or not. Baby Boomers continue to be studied, surveyed, and analyzed for their preferences, buying habits, and saving patterns. Regardless of the industry, the behaviours of this demographic makeup of our society simply can't be overlooked and particularly not with 10,000 North American Boomers celebrating their 65th birthday every day for the next 20 years. (Source: Pew Research Center).
In the pension and benefits world, the life event milestones of Boomers demand greater attention and strategic thinking. More focus is being placed on what benefits coverage will be appropriate as well as how to best to draw down on investment income in their post workforce participation world. With decumulation, the question becomes not whether a person saved enough for retirement, but how best to draw down regular income post workforce participation and not run out of money before death. It comes down to balancing acceptable risk versus a sustainable withdrawal rate.
There are various methods to help people draw down on their investment assets. Looking at the cost, risk and flexibility as well as understanding the person's personal preferences related to their finances is important. As this topic heats up, some questions to consider when planning a withdrawal from workforce participation include:
1) Are there any debts that should be paid off so there are no payments taken from retirement income?
2) How much if any of a "rainy day" emergency fund is needed?
3) Are there any funds to be set aside for specific bequests?
4) What other assets should be factored in (e.g. house)?
5) What type of expenses exist and how should they be broken down based on essential (necessary for survival), basic (ability to travel south each winter) and discretionary (like make charitable donations)?
When addressing the decumulation strategy, thought should also be given to one's 1) private pension, 2) government sponsored benefits, 3) any continued workforce participation, 4) taxation, 5) investment costs, interest rates and the rollercoaster ride given by stock markets.
There are several decumulation methods and each varies when it comes to cost, risk, and flexibility associated with them. They include:
1) working with a financial advisor
2) lifetime annuity or term annuity
3) draw down pension and/or target date funds with a decumulation feature
4) home equity release
5) Shifting investments to TFSAs
6) RRSP "meltdown" - making RRSP withdrawals earlier in life if you'll face tax at a lower rate than anticipated in the year of your death.
Increasingly, approaches to addressing decumulation will take center stage where accumulation discussions previously dominated. There is much to unbundle and address on the decumulation topic particularly as it pertains to what can be withdrawn on a tax-free basis and the different age limitations related to annuitizing or converting assets. We invite you to contact us to discuss what decumulation strategies would work best for your corporate pension plan arrangement as well as best practices related to educating your plan members.
We're here to help so you can focus on what you do best.
In the past, I've blogged about the critical issues facing Canadians when it comes to be debt management and saving for retirement. The current challenges we face are not insurmountable, but the problems relating to apathy toward digging out of debt and having money saved for a rainy day don't seem to be headed toward resolution any time soon.
The statistics are staggering and somewhat disturbing:
Aside from what I've written about, there is a plethora of information on the Web about financial literacy and the importance of positioning Canadians for success when it comes to managing their finances. Countries like the U.K, Australia, New Zealand, the U.S. and Canada have developed national financial literacy programs. Increasingly, high schools are making financial literacy a mandatory part of the educational curriculum.
What about the workplace? Since most adults spend a bulk of their day working at their respective jobs, employers have the ability to play a key role in influencing employees about the importance of financial literacy. At present, it appears that attention on financial literacy in Canadian workplaces remains somewhat overlooked. Workplace financial literacy programs support employees to develop skills relating to their pay as well as managing for retirement. In turn, employers see increases in employee engagement and productivity because employees are less stressed and more present (physically and mentally) when at work. In the Report of Research Finding relating to personal finances and worker productivity, employers found that when employees were financially distressed, they were less committed to their company and less satisfied with their pay. In addition, employees stressed about their finances spent an average of 20 hours a month of work time trying to solve these problems.
So, what can employers do to beef up employees' financial literacy awareness? Here are some basis tips that cover helpful approach worth considering:
For more specific ways to incorporate financial literacy programs in your workplace, please contact us. We're here to help so that you can focus on what you do best.
There are many forms of stress and the World Health Organization (WHO) estimates that it costs American businesses up to $300 billion a year in lost productivity, absences, and associated disability costs.
Stress results in a lack of focus on the job, increased errors and missed deadlines. When employees are stressed, they can be more irritable, which may result in interpersonal issues with colleagues and can pollute the positive culture of a workplace. In a recent study by the American Psychological Association, financial stress is one of the top sources of stress for North Americans.
With Christmas bills to pay and increased pay cheque deductions for government-sponsored programs such as the Canada Pension Plan and Employment Insurance, employees tend to face additional stress related financial woes early in the new year. This stress hurts a company's bottom line.
According to a Financial Wellness Survey by PricewaterhouseCoopers, 29 percent of employees reported that personal finance issues distracted them at work. The survey also revealed that 48 percent of respondents admitted to taking time off during work hours (2-3 hours per week) to handle their personal finances.
Employees worry about having enough funds for an emergency or unexpected expenses. According to a Purchasing Power survey, 44 percent of employees report that they don't have $2,000 in emergency funds. Some are living pay cheque to pay cheque and they can't keep up with their debt (28 percent struggle to meet household demands). As a result, they worry about their job security. When there is increased financial stress, there is a direct relation to workplace accidents, higher disability costs and higher employee turnover.
Employers can help employees reduce financial stress. Here are five tips to consider:
To learn more about workplace solutions to help reduce employee financial stress, please contact us. We're here to help so that you can focus on what you do best.
Financial Literacy month is an important time to discuss ways to encourage short and long term saving goals. Perhaps even more relevant is the need to address debt management tactics.
Based on Statistics Canada results, Canadians' ratio of household debt to personal disposable income was 66 percent in 1980. Fast forward to recent findings and that ratio has reached 163 percent. This increase translates into households owning more than $1.63 for every dollar of disposable income.
Canadians on a whole are tracking higher debt to income ratios than U.S. or British counterparts. Somewhat insulated from the intensity of the 2008 economic downturn, Canadians have taken advantage of low interest rates. In a recent Bank of Montreal study, 20 percent of Canadian said that if the interest rate on their mortgage increased by just 2 percent, it would put them out of their homes as they wouldn't be able to afford it.
Canadians continue to spend and have suffocatingly high unsecured debt issues. Our comfort in carrying high amounts of unsecured debt is staggering. Currently, there is 50 billion dollars owed in unsecured debt and loan payments.
Did you know that a university graduate carries $28,000 in unsecured debt. Canadians aged 50 or older owe $84,000 in unsecured debt and 47 percent of this cohort have saved less than 25 percent of their savings goals. Those aged 30-49 owe $67,000 in unsecured debt.
An even more alarming debt statistics involves retirees. Owing $69,000 in unsecured debt, with $37,000 related to credit card balances, it must be immensely difficult for retirees to implement effective repayment plans while operating on a fixed income.
Although current interest rates remain low, at some point they will change -- meaning -- they will increase and when they do, will Canadians be ready?
Here are some practical tips to address debt reduction in realistic and practical ways before the situation becomes almost unmanageable:
For questions about ways to save or to build financial literacy awareness, please contact us. We're here to help so that you can focus on what you do best.
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.