Canadians baffled by TFSAs

It’s been more than three years since the Federal Government introduced Tax-Free Savings Accounts (TFSAs), but a 2011 survey from ING DIRECT reveals the majority of Canadians are still unclear about them.

Those surveyed indicated they have a vague idea (37%) or don’t understand how the TFSA works (14%), while 13% of Canadians said they don’t know what a TFSA is.

A similar survey conducted in 2008 found 39% of Canadians had a vague idea about the TFSA, suggesting awareness hasn’t increased that much in the last three years. Who’s using the TFSA?

• Of the 41% of Canadians who have a TFSA, 46% earn $100K+ per year, versus 34% who earn less than $50K.
• Of the Canadians who have a TFSA, those aged 35-54 are least represented at 36% versus older (48%) and younger (40%) age brackets.
• Older Canadians (55+) indicated they fully understand what a TFSA is, versus 28% of those 18-34 years and 31% of those 35-54 years.
• 56% of those aged 35-55+ indicated they use their TFSA for retirement savings versus 11% of those aged 18-34.
• Those aged 55+ have used more than half the contribution room available ($8,395) whereas those aged 18-34 have used less than a third of the contribution available ($4,538).

Seventy percent of Canadians said they felt the TFSA was a long-term savings vehicle, however only 24% of respondents indicated they use the TFSA primarily for retirement savings. Almost half of Canadians (48%) say their TFSA is just another way of saving money, while 10% use their TFSAs as an emergency fund.

The survey also revealed that more Canadians are dipping into their TFSAs, with 31% of respondents admitting they’ve made a withdrawal from their account since they started saving, up from 20% last year. Those who withdrew funds said they needed the money for an emergency (54%), they used their TFSA to save for a goal and achieved it (17%) or they use their TFSA as a regular savings account (17%).

When asked what they would like the annual maximum TFSA contribution amount to be if they could choose to change it, a surprising number of Canadians (51%) indicated they would opt to increase the limit, with the largest percentage of respondents (19%) preferring to have $7,501 – $10,000 in annual contribution room. Despite wanting the option to increase their annual limits, only 1 in 10 Canadians has contributed close to the maximum contribution limit ($14,001 – $15,000). A quarter of Canadians have contributed less than half of their available TFSA contribution room.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.