The other day, I did something I had never done before. I had no cash and my bank account was temporarily under water, so I charged my groceries on my credit card.
I could almost see the ghost of Grandma looking down at me, telling me that I would go to Hell. Grandma was a Presbyterian. She went through the Depression. She thought debt was the original sin. She ate homemade meat loaf. She would have been appalled that I'd bought takeout teriyaki salmon ($18.99/lb.) on credit.
Some of Grandma's genes made their way down to me. I started saving money when I was 8, and never stopped. I've always paid off my credit card every month. Debt makes me queasy. I married a man who's a lot like me, and we have no kids to put through law school. So despite my recent lapse, I am reasonably sure we won't be eating cat food when we're 80.
Some of our friends aren't so lucky. Because of imprudence, misfortune, a vast shift in cultural habits, or the sheer financial drain of supporting their kids until age 28, they are facing their old age with no savings, no pension and few assets. I have no idea what they're going to do. All I know is that there are plenty of them. For the first time since we introduced old age pensions, millions of people who've led comfortable, middle-class lives are facing a big drop in their standard of living when they stop working. No more salmon teriyaki for them.
"A large chunk of the baby-boom generation is on the verge of retirement with only the state to depend on for a retirement period that will be, on average, the longest in Canadian history," writes consultant Robin Sears in the magazine Policy Options. "We were pension pioneers. But we've lost our way."
Whose fault is it that we don't save like Grandma did? Is it ours, for crashing our savings rate below zero, and not being disciplined enough to resist the siren call of easy debt that's been relentlessly marketed to us for a generation? Whose fault is it that we're living longer than anybody has before, and screwing up the actuarial tables? Whose fault is it that the vast majority of us fail to save at least 10 per cent of our earnings starting at the age of 30, the way we're supposed to? What about the single mom who's put her kid through university, or the highly creative guy who is stupidly hopeless with his money, or the manager who got laid off at 57 and has to dip into his savings, or the millions of conscientious people who pay shocking fees to the investment industry to mismanage their RRSPs? Should we blame them, too?
You can see the problem here. Saving up for your old age is an individual responsibility. But helping you do it is a social one.
It would be nice if we could be more like the Chinese, who save 40 per cent of their money. That's because they know they might starve or die from lack of health care if they don't. The danger is that we'll wind up like the Japanese, who suffered a huge economic hit in the '70s and '80s. Millions of retired folks were forced back into employment to support themselves. Former doctors took jobs as parking-lot attendants.
The political appetite to address the coming retirement shock is something less than zero. Governments have other problems on their plate. But not to worry. Our federal Finance Minister thinks a massive public education campaign in financial literacy is the answer. As soon as Canadians understand they shouldn't be buying groceries on credit, they will stop. I'm sure this plan will work just as brilliantly as the massive public education campaign against obesity.
The trouble is that knowing what we ought to do (not eat the cookies) is not at all the same as doing it. Our brains aren't wired very well for denial and deferred gratification. Nor are they wired for grasping the ins and outs of complex retirement savings plans. "I would like to think most people are amenable to being walked through some basic financial principles," says pension expert Keith Ambachtsheer. "But it's a long way from there to actually acquiring the knowledge and tenacity and financial resources to allow you to stop working (a) when you want, (b) at the standard of living you want." Or, as one experienced person who is hired to provide financial education to company employees puts it, his students remind him of his dogs watching television.
So what's the answer? Mr. Ambachtsheer and other pension experts believe the only answer is some version of soft coercion. That is, you must strongly encourage people to save for their own retirement throughout their working lifetime, while preserving some element of choice. This is what's been done in Australia and Chile. Australia introduced a compulsory retirement savings plan that allows workers to choose any pension provider they want. The theory was that the element of choice would keep costs low and competition high. But it turns out most people don't want to choose. They're just not that knowledgeable or interested.
Singapore doesn't offer choice. It simply extracts money - lots of it. People pay as much as one in every five income dollars into its savings scheme, which is run by the government. Singaporeans like it, although we would not.
Yet, the truth is that if we want to cushion the coming retirement shock, it's going to cost us plenty. It is also going to require a degree of coercion that few of us are ready for. No wonder politicians want to boot this one down the road. Telling people they need to eat less cake today so that there is some left over for tomorrow is one tough job.