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Good morning!
Canadians appear to be pivoting back to making retirement savings a priority as economic uncertainty creates anxiety over their finances.
Just over half of people plan to add to their registered retirement savings plans (RRSPs) this year, a “substantial” jump from last year when only 18 per cent said they would contribute, according to research from Edward Jones Canada. Twenty-three per cent expect to contribute the maximum amount allowed.
Younger generations are driving the charge to save. People aged 18 to 34 are 22 per cent more likely to add to their RRSPs, and 17 per cent of that cohort plan to contribute as much as possible. Similarly, 23 per cent of people aged 35 to 54 are 23 are expected to add some cushion to their RRSP savings, with 15 per cent planning to put in the maximum amount.
The data might seem counterintuitive as a higher cost of living boosts expenses, making saving for retirement challenging. People are paying more for things like food, with grocery store bills up 11 per cent in December from a year ago. Food prices rose nine per cent overall in 2022. Income levels and debt are also factors eating into budgets and keeping people from adding to their RRSPs, the survey said. Still, more people this year say they can afford to put money in their RRSPs than they did last year. Only 16 per cent report not being able to contribute at all, a drop from 29 per cent a year ago.
That’s not to say people aren’t worried about how the economy will impact their budgets in the months ahead. Though the Bank of Canada has pledged to pause interest rate increases for now, rates remain high and inflation continues to grow above the central bank’s target of two per cent. Those elevated rates, meant to cool demand, have also put the economy at risk of a recession, which would have further consequences for people’s finances. All that uncertainty has created anxiety about money for 50 per cent of people, and another 14 per cent say they are scared.
Money fears could be one reason why people are trying to shore up their retirement savings this year. But the pivot also has roots in the Bank of Canada’s move to bring interest rates higher and dampen consumer spending, Edward Jones said.
“Rate hikes were designed to replace spending with saving, and our data demonstrates they are doing just that,” Julie Petrera, senior strategies, client needs, at Edward Jones said in a release.
RRSPs aren’t the only investment vehicles Canadians are using to save for retirement. Tax-free savings accounts (TFSAs) are being used by 51 per cent of savers, and 11 per cent are turning to real estate as an investment. Another 10 per cent make use of non-registered investment accounts. Each of those options hold different benefits and drawbacks, Petrera said, which means people may want to seek out professional advice to make the most of their savings. “The data highlights the important fact that there is no such thing as a one-size-fits-all approach to investing,” she said.
For those planning to make RRSP contributions this year, the deadline is fast approaching. The RRSP contribution window closes on March 1, 2023.
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The overall consumer price index climbed 0.5 per cent in January, the most in three months and bolstered by energy and shelter costs, according to data out Tuesday from the Bureau of Labor Statistics. The measure was up 6.4 per cent from a year earlier.
Excluding food and energy, core CPI advanced 0.4 per cent last month and was up 5.6 per cent from a year earlier. Bloomberg economists had expected a 0.5 per cent monthly advance in the CPI and a 0.4 per cent gain in the core measure. But both annual measures came in higher than expected and showed a much slower deceleration than in recent months.
David Rosenberg, economist and founder of Rosenberg Research, said in a note to clients that the slowing in core CPI “is encouraging.”
“The deceleration is intact, even if gradual so far,” he said.
Rosenberg expects the service sector component of the CPI to slow “sharply” in the latter half of the year when new rental supply comes onto the market.
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- Ernie Steeves, New Brunswick minister of finance, will present the province’s third-quarter financial results. A funding announcement follows
- The Canadian Real Estate Association will release its January home sales figures
- George Smitherman, president and CEO of the Cannabis Council of Canada, will hold a press conference with several cannabis sector CEOs on Parliament Hill to discuss the impact recent layoffs and facility closures are having on producers of all sizes across Canada
- Justice Minister David Lametti and Marci Ien, minister for women and gender equality and youth, will make an announcement regarding Canada’s Black Justice Strategy
- The standing committee on government operations and estimates meets regarding federal government consulting contracts awarded to McKinsey & Company. Sean Fraser, minister of immigration, refugees and citizenship will appear by videoconference
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- Peter Bethlenfalvy, Ontario minister of finance, will release Ontario’s 2022-23 third quarter finances and provide an update on Ontario’s economic and fiscal outlook
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- Today’s data: Canadian housing starts, manufacturing sales and orders, wholesale trade, existing home sales; U.S. retail sales, Empire State manufacturing survey, industrial production and capacity utilization, NAHB housing index, business inventories
- Earnings: Cisco Inc., Glencore Plc, Shopify Inc., Suncor Energy Inc., The Kraft Heinz Company, Nutrien Ltd., Constellation Software Inc., Manulife Financial Corp., Barrick Gold Corp., Marathon Oil Corp., Kinross Gold Corp., Riocan Real Estate Investment Trust
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We all have our own unique ways of dealing (or not dealing) with money. Whether you’re a compulsive saver or compulsive spender, your money personality type, can lead to habits that are hard to break. That’s why money can be so hard to talk about, let alone manage money within a relationship.
Ken Honda, Japan’s “zen millionaire,” has spent years counselling individuals and couples through these struggles. Our content partner MoneyWise Canada recently spoke to the author to get his insights on what your money personality can tell you about your relationships, and how couples can avoid those finance-fuelled fights.
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Today’s Posthaste was written by Victoria Wells, @vwells80, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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