ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day.
The problems with Canadian household balance sheets aren't limited to the fact that we've collectively run up a lot of debt. The flip side of that is that we're not saving very much, either. And nowhere is this more glaring, and worrisome, than in our retirement accounts, where the consumer gluttony of the present is starving our future.
Less than three weeks before the deadline for registered retirement savings plan contributions for the 2012 tax year, Statistics Canada has released data on how much Canadians contributed to these tax-sheltered plans last year. The numbers show an alarming complacency among taxpayers about their long-term financial welfare.
Fewer than six million Canadians reported RRSP contributions on their 2011 tax returns, which works out to just 24 per cent of eligible tax filers. A decade ago, 29 per cent of eligible Canadians contributed to RRSPs; the number has been in steady decline ever since. The median contribution was just $2,830 – less than 13 per cent of last year's contribution limit of $22,450. Despite the fact that the maximum contribution under Canada's tax laws has risen 66 per cent since 2003, the median contribution has risen just 9 per cent – not even keeping pace with inflation and wage growth.
There's certainly an argument to be made that the market slump during the financial crisis discouraged Canadians from retirement investing; indeed, the country's total RRSP contributions declined during the downturn of 2008 and 2009, and only returned to their pre-recession levels last year. Total contributions experienced an even deeper slump in the post-dot-com bear market of 2001 and 2002.
But this annual lack of RRSP participation is hardly limited to times of bearish market conditions. The participation rate has consistently fallen even in strong years for financial markets, and median contributions rose little even during last decade's extended bull market.
It's even more perplexing given that the country's other key source for retirement savings – company pensions – is hardly backstopping most Canadians. At the beginning of 2011 (the most recent data available from Statscan), only 39 per cent of Canadian workers were covered by an employer pension plan; in the private sector, only 24 per cent of employees had a company plan, down from 26 per cent just five years earlier.
Even if you assumed that the people contributing to RRSPs and those with employer pension plans are two entirely separate and distinct groups, it would still mean that less than two-thirds of Canadians built up any retirement savings at all in 2011. And there is certainly significant overlap, so the pension participation rate is going to be something even less than that.
The numbers are consistent with what the banks and mutual fund companies love to tell us ahead of the RRSP deadline – that as a nation, we're woefully ill-prepared for our retirement needs, and we have to save a lot more if we're going to live our last years without going broke.
While their warnings are unquestionably self-serving, that doesn't make them any less true. The implications for a nation of overspending, overindebted and savings-averse consumers stretch beyond the current economic cycle; if we don't improve these trends, there's a longer-term economic and social price to be paid.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.
David Parkinson