Canadians prefer to spend their money on instant gratification, such as buying cars and taking vacations, rather than saving for their retirement, a Bank of Montreal survey found.

The report, Retirement Planning: Can I Get Back To You On That?, based on a survey conducted by The Strategic Counsel, is unlike other recent retirement studies, which tend to focus on whether Canadians are saving enough. Instead, this report explores the psychology and competing priorities that stand in the way of effectively saving for retirement and finds a disconnect between Canadians’ beliefs and behaviours.
Drawing on behavioural finance research, the report examines the concepts that affect decision making, including:

1. Immediate Gratification – i.e., placing less value on a reward in the future than a benefit in the present, often encouraging procrastination. Although 82 per cent of respondents acknowledge the importance of saving early for retirement, more than eight in 10 non-retirees (81 per cent) who have not set aside any savings said they were more concerned about current needs.
2. Paralysis of Choice – i.e., when one is faced with an over-abundance of information, resulting in the inability to choose at all. According to the report, more than one-third (36 per cent) of non-retirees stated that they are overwhelmed by too much information, and this has been an obstacle to their retirement saving plans.

BMO found a disconnect between attitudes toward saving and retirement and what actually happens in practice. About 90% of respondents believed that saving for when they leave the workforce should begin early, but in reality 40% of them had done little or nothing to prepare.

More than eight in 10 of those who aren’t saving said they’re more concerned with satisfying current needs, rather than putting away money for the future.

“We’re not practicing what we preach,” Tina Di Vito, head of the BMO Retirement Institute said in an interview. “We place a higher value on the immediate reward than putting aside rewards for the future.”

Repeated surveys have shown that Canadians are not saving enough for their retirement, despite products such as RRSP’s offering relatively generous tax benefits.

The government has launched a financial literacy campaign designed to improve education about finance and is seeking to revamp the pension system on concern about the potential economic impact of poor retirement planning as the population ages.

The BMO study pointed to a number of other psychological, or behavioural reasons, as to why Canadians aren’t saving.

One factor was an over-abundance of information. When faced with too much choice, consumers tended not to choose at all, with more than one- third of respondents saying they were overwhelmed by the number of products on the market.

It also found that having children had an impact on retirement saving, with 42% less likely to view it as an immediate priority. Canadians between the ages of 35 to 44 are the most likely to have debt, with 88% owing money. Of those 44% are unhappy with the amount they have saved.

BMO, which is using the findings to help tailor its approach to retirement planning, said the survey has shown that people should take small steps at a time.

“You should set small objectives, rather than having aspirations looking out over a 20 to 30 year time horizon,” Di Vito said. “That’s much more effective to get people to take on a plan and stick to it.”

BMO also suggests creating a strict budget to control your spending, signing up for your company’s pension plan if it has one and setting up an automatic savings plan.

The survey polled 2,034 Canadians aged 35 or older between May 26 and June 2.

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