Payroll deductions improve savings rate

Despite a deteriorating track record on savings, Canadians remain optimistic about their financial future and many believe that an automatic payroll deduction plan is the best way to save, according to a national survey released today.

Among Canadians under 60 years of age, 69% expect their finances to be in better shape four years from now, according to the National Savers Study, an annual survey commissioned by Canada Investment and Savings, the government body responsible for the Canada Savings Bonds (CSB) program. Only 8% within that age group said their finances would be in worse shape than today.

“These results demonstrate a continued high level of confidence among Canadians,” said Louise Montague of Canada Investment and Savings. “And it is encouraging that the majority of Canadians still hold a great deal of optimism with respect to their personal financial situations.”

This high level confidence may appear overly optimistic, considering Canadians’ personal savings rate fell to -0.5% in the second quarter of 2005, according to Statistics Canada.

“Canadians are juggling a number of competing priorities and challenges when it comes to making decisions about saving and investing,” said Montague. “However, this study also tells us that Canadians feel more comfortable about the future and feel less financial pressure and anxiety when they have some savings.”

The study’s findings offer support for payroll deduction savings programs, as participants say they are able to save more than 5% of their annual income by having it bypass their chequing account. Among the general population, about half of Canadians say they are attaining that level of savings.

It should be noted, of course, that CSBs are available through such a payroll deduction plan.

“A third of Canadians report that an automatic deduction plan is the most important method of saving,” said Louise Montague of Canada Investment and Savings. “Canadians believe that the two most important rules of saving are to start early and to stick to a plan. Payroll helps them reach both of those objectives.”

Among those who buy CSBs through payroll deduction, 24% set aside between 1% and 5% of their annual income; 34% set aside between 6% and 10%; and 13% devote 11% to 15%. Another 17% manage to squirrel away more than 15%.

Still, 52% of respondents to the survey said that paying down debt was their primary focus, admitting that it hampered their ability to save. Sixty-seven percent said increases in everyday expenses were having an impact on their savings rate. Thirteen percent of Canadians — about 4 million people — reported they do not save anything at all.

The study also found that Canadians are twice as likely to describe themselves as conservative investors than aggressive investors, with security of savings being the most important factor when making decisions about savings and investment products.

Montague says the CSB Payroll Savings Program currently deals with 12,000 public and private sector organizations, representing nearly a million employees.

The 2005-06 Canada Savings Bond sales campaign kicked off on October 3, 2005 and runs until April 1, 2006.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com