Saving for the future, one bite at a time: Teitel

Emma Teitel | The Star

Surveys confirm Canadians are sadly lacking when it comes to financial literacy; most don’t even have a household budget.

I used to work at Subway; a job, I discovered, conducive to eating a lot of sandwiches but not so great for putting aside money for later.

Which is why, when I left sandwich artistry for the slightly more lucrative field of journalism, I began saving for my retirement. I opened an RRSP and, without bothering to read any of the rules involved, contributed to the account blindly and frequently: $100 here, $50 there.

My logic? Saving is saving: As long as I was funding my future, I could do no wrong.

Wrong. I saved so wholeheartedly that I depleted the funds in my chequing account to the point where I couldn’t afford to buy groceries. To put food on the table, I was forced to withdraw funds from my RRSP. My mistake was both embarrassing and expensive. But, I suspect, not all that uncommon.

TD Bank released a survey this week indicating that nearly one-third of people aged 18-33 know little to nothing about RRSP accounts.

For example: Half of the survey’s respondents were unaware an RRSP could be used to assist in the purchase of a home and 60 per cent were under the false impression they could use their RRSP to pay their child-care expenses. Fifty two per cent believed it could be used to finance a car.

And 10 per cent believed it could be used to cure cancer. No, not really, but you get the idea. Millennials have poor financial literacy, especially when it comes to their savings.

And yet, so does almost everybody else. TD’s survey may be millennial focused (what isn’t these days?) but its result is likely indicative of a broader financial literacy problem, one affecting not merely Generation Y but older demographics as well.

According to a recent study by the Financial Consumer Agency of Canada, more than 6 out of 10 Canadian adults rate their financial literacy as “poor.”

Although many of us are saving for our retirement, most of us don’t know how much or how often we should contribute.

But perhaps the most damning statistic released by the organization, a figure that may reveal the basis of our lack of RRSP knowledge is this one: only 46 per cent of Canadians have a budget.

A budget, no matter its size, is no small thing. After all, if you don’t have a tool to manage how much milk you need in a month and how much you can afford to spend on snacks at the movies, how on earth do you know what you should put away for old age?

Absent a budget, you could end up famine-stricken at the age of 75, with no money in the bank or, like me, famine-stricken at 25, with all your money in the bank.

If we can’t master short-term financial planning, it’s no wonder we’re out to lunch when it comes to the long term.

This isn’t just my theory. Crystal Wong, senior regional manager of TD Wealth Financial Planning, confirms that people are less likely to save properly for retirement if they do not have a budget.

“People who don’t have a budget don’t understand what disposable income is,” says Wong. “The budget is important because it helps you understand where your money is going.”

In other words, planning for retirement absent a budget is akin to attempting advanced calculus absent basic addition and subtraction skills.

But we insist on doing exactly this, maybe, I suspect, because opening an RRSP, whether or not you know anything about it, feels good.

Even if you’re frivolous day to day — spending money you don’t have on things you can’t afford — the knowledge that you have such an account temporarily assuages your financial anxiety.

You say to yourself, “Well, I’m late on my phone bill and I probably shouldn’t have bought that $30 brick of parmesan cheese, but at least I’ve taken the first step toward a happy and stable future.”

The problem is, without a plan, you may never get there. Take it from a former sandwich artist turned columnist who, thanks to a budget, is finally in the black. (For now, at least.)

Emma Teitel is a national columnist.