TORONTO, ONTARIO--(Marketwire - Aug. 1, 2012) - The BMO Retirement Institute today issued a report which found that young Canadians, while aware of the need for retirement planning, are putting their retirement at risk by not considering how much money they will need and are often delaying saving for retirement.
The report, Broadening the Approach to Preparing for Retirement, examined attitudes on retirement among young adults (between the ages of 18 and 34):
- On a positive note, the majority (82 per cent) of young adults surveyed believe retirement planning is important, with more than half (52 per cent) owning a Registered Retirement Savings Plan (RRSP) and 36 per cent having a Tax Free Savings Account (TFSA).
- However, only one in 10 young adults have thought a lot about how much money they will need to save for retirement.
- Moreover, almost a third (27 per cent) admitted they have not started saving for retirement.
"While it's great news that young adults appreciate the importance of retirement planning, it's a concern that many are not backing it up with concrete action," said Tina Di Vito, Head of the BMO Retirement Institute. "A clear dichotomy exists between what young people think about retirement and what they are actually doing to prepare for it."
The report also outlined the importance of attitudes and behaviours when preparing for retirement, as well as the critical role parents can play.
Attitudes and Behaviours Result in Action
According to Ms. Di Vito, attitudes and behaviours are strong predictors of financial preparedness for retirement. The report found that young adults are the least prepared for retirement, despite the fact that one-quarter of them expect to retire early. While almost a quarter (23 per cent) of Boomers over the age of 55 have thought a lot about how long they might be retired, only five per cent of young adults have given this a lot of thought. As a result, they are not spending adequate time gathering information on retirement planning, attending seminars, or consulting others on retirement planning; many are also not actually saving.
Factors that may hinder their progress in establishing themselves financially, in general, let alone for retirement, include poor post-economic recession job prospects, rising student debt and lower real wages.
The Importance of Role-Models
The report also found that role models are critical to helping young people think differently about their financial future. With half of young adults 20 to 29 years old still living with their parents, Mom and Dad can be effective financial role-models by demonstrating sound financial management and savings habits along with involving their children early in the process. This could involve engaging their adult children in contributing towards household expenses as soon as they begin to work. Making regular contributions to a Registered Education Savings Plan (RESP) and involving their kids in the process while they are in their early teens, talking to kids about money management and budgeting, encouraging their adult children to attend retirement-related seminars and webinars, and introducing them to financial professionals are other ways in which parents can help.
"Parents and other influential adults have to foster an environment that will encourage young people to think about their financial future," said Ms. Di Vito. "Despite the challenging and complex financial realities facing young people today, increasing their financial preparedness for retirement will guide them towards positive results."
The BMO Retirement Institute offers the following advice for parents to encourage young people to think strategically about their financial future:
Start Early: The power of emphasizing positive habits cannot be underestimated. Involve kids in their tween and pre-teen years by talking to them about saving and setting financial goals. Open an RESP for them, make regular contributions and teach them about the power of compound tax-deferred growth.
Hold Them Accountable: If adult children are working but living at home, discuss their financial contribution towards general household expenses; perhaps even charge them rent. If asking for rent makes you feel guilty, consider investing the "rent" money in a separate account and then surprise them with a monetary gift at a later date to use for their wedding or for a down payment on a home.
Speak Their Language: Instead of using words like "retirement planning," make the future more relevant with phrases like "save money for tomorrow." These interactions will increasingly need to take place using their preferred channels of communication such as smartphones and social networking websites.
To view a copy of the full report, please visit: www.bmo.com/retirementinstitute.
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*Sources for all data and findings referenced in this release can be found in the report at www.bmo.com/retirementinstitute.
About the BMO Retirement Institute
The BMO Retirement Institute was established in 2008 to conduct research on retirement issues and provide thought-provoking insight and financial strategies for individuals planning for, or currently in, their retirement years. Tina Di Vito, head of the BMO Retirement Institute, is a Chartered Accountant, Certified Financial Planner and Trust and Estate Practitioner.