Debt repayment remains the top financial goal for Canadians for the third year in a row, while saving for retirement has decreased in importance. According to CIBC’s most recent poll, 17 per cent of Canadians listed paying down debt as their top financial priority in 2013, unchanged from last year’s poll.
Retirement planning is no longer one of the top three financial priorities for Canadians – only seven per cent listed it first, down from 13 per cent in 2011. Sandwiched in between in is building savings at 10 per cent and managing day to day spending/budgeting at eight per cent.
Canadian Shy Away from Credit Counseling
It’s no secret Canadians are taking advantage of record low interest rates – the debt to income ratio reached a new high of 164.6 per cent to close out 2012. So why do Canadians list paying down debt as their top financial priority? Perhaps they’re finally realizing interest rates won’t be low forever – it’s a good idea to start paying down debt sooner rather than later.
Are Canadians taking debt reduction seriously? While nearly 50 per cent of Canadians sat down with their financial advisor last year, only six per cent discussed debt management. “Many Canadians are missing an opportunity to get advice about debt management as part of their broader financial plan,” says Christina Kramer, Executive Vice President of Retail Distribution and Channel Strategy for CIBC. “As you repay debt, you reduce interest costs which can free up some of your income to be directed towards other goals, such as building up your savings account or having a better monthly cash flow.”
Retirement Planning Put on the Back Burner
Those closest to retirement are choosing debt management as their top financial priority over retirement planning. Only 12 per cent of Canadians aged 45 to 64 listed retirement planning first, down significantly from 24 per cent just two years ago. Meanwhile, 18 per cent listed debt management first, up from 14 per cent in 2011, as more Canadians carry debt into retirement.
“While it is important to address immediate financial needs such as debt reduction, it is equally important to keep long term goals such as retirement in sight,” says Kramer. “Even small contributions today can make it easier in future years to reach your retirement savings goals.”
A Balanced Approach
Debt payment and retirement savings aren’t mutually exclusive – you can still have your cake and eat it, too. While it’s important to focus on paying down debt, especially high interest debt, it’s still important to save towards retirement. The sooner you start saving for retirement, the more you’ll reap the rewards of the power of compounding.
“It is possible to make debt repayment a priority while still keeping up regular investments into your retirement plan, and that can be made easier by having a clear plan with an advisor that outlines the steps you can take each month to get closer to your goals over time,” says Kramer.
If you’re swamped with debt, by all means set it as your top financial priority. However, once your debt is under control, you can start to put some money aside for other financial priorities like your retirement and saving for a raining day. If your mortgage is your biggest debt like most Canadians, why not get the best of both worlds? Contribute to your RRSP and use the refund to pay down your mortgage – it’s a win-win situation!