The COVID-19 pandemic has taken a tremendous toll on the physical and mental well being of people across Canada and around the world, while also having a significant negative impact on the financial health of many Canadians. Our upcoming DC Plan Experience event, being held on February 9th at the Ritz Hotel in downtown Toronto, will dig deeper into the financial lives of plan members. The agenda will look at how plan members approach financial decision-making, the financial realities they’re dealing with right now, and how DC plan sponsors can help them with investment and plan design solutions.
In advance of the event, we spoke with keynote Bruce Sellery, CEO of Credit Canada Debt Solutions. Credit Canada is a non-profit credit counselling agency dedicated to providing Canadians with debt relief. We asked him to share his unique perspective on how DC plan sponsors can best understand the financial needs of their members and engage them effectively.
How is the financial health of Canadians right now? Do you think the pandemic’s going to have longer-term impacts?
This is the “tale of two pandemics”. The “haves and have-nots”. We have employed, white-collar workers who are doing way better, financially, than they were before the pandemic. And that’s for three reasons: the value of their home has increased dramatically, the value of their investment portfolio has increased dramatically, and their ability to save has increased—dramatically because they’ve had nothing to spend on. They’re not traveling. They’re not buying much. They’re not doing much. They’ve seen roughly $160 billion in savings.
We also talk about the great resignation economy right now where people are leaving jobs because the economy’s doing quite well. In the white-collar world, there is such incredible demand for HR managers, social media managers — all those kinds of professionals.
The other pandemic is heartbreaking. Prosper Canada recently did a survey of lower- income Canadians and found that, as of the end of June 2021, there was a significant increase in the percentage of lower-income Canadians who were experiencing significant financial hardship. In June of 2020, it was 55% and in June of 2021, it was 65%. And the percentage that was unable to meet essential expenses was 30% in June of 2020, and it’s 40% in June of 2021.
These are people who lost their jobs because of the pandemic, or they’re back, but only part-time because they work in industries that haven’t fully returned like hospitality, tourism, or retail. There has also been a big decline in self-employment over the course of the pandemic.
So, financially, the pandemic has been devastating for this group.
Given this reality, is retirement savings even on the radar screen for most Canadians post-pandemic?
I think it’s on the radar. I think people who are in the “haves” category did two things. One is they paid down debt, so that’s good. Some of that’s consumer debt, and some of that is paying lump sums on their mortgage. But many people are just sitting on a tremendous amount of cash and not investing it for the long term.
For employers offering some form of retirement savings plan to members, does this make it harder or easier to engage them?
would say the biggest challenge is the trade-off of “today versus tomorrow”. That goes back to our fundamental inability, as humans, to think and manage our priorities for a long-term time crisis. We are prone to time discounting. We are focused on the near term. And because we have a very hard time conceiving what life will be like decades down the road, we don’t plan for it, and we don’t make the tough calls in the present.
The other dynamic, generationally, is that younger folks are dealing with ridiculous housing costs. It’s just off the charts. If you’re someone in your 20s or 30s who’s looking to buy a house, or you’ve bought a house recently, how are there even two pennies left for basic living expenses? Not to mention the opportunity to max out the company match on their DC plan.
They have that challenge on the housing front — but they also have another challenge: Our consumer culture. We buy stuff and we put it on our credit card. We have expectations around our physical environment that older Canadians did not have. For my part, I lived the student life really until I was 30. I had roommates; I bought my first new couch when I was 28. This next generation has a different set of expectations, driven in part by social media and reality TV.
My child has an ensuite bathroom, with a floating tub in front of a floor to ceiling window. I never had that as one of five kids. They’re an only child, and hopefully they are going to go off to college or university and live somewhere disgusting, preferably with mold and mice. But when they are done with school, I worry that they’ll be asking, “Where’s my floating tub with the floor to ceiling window?”
So how can plan sponsors work around this and get them focused on retirement planning?
On the strategy front, helping an employee see their future self makes an enormous difference. I use the FaceApp aging technology for example. There’s a whole way to build a narrative about retirement, to make it relevant and real.
Even more than that, I think you have to use behavioral science and nudges that are so pronounced it makes it very difficult for them to not save. The best example, and I don’t know why we aren’t doing it more here in Canada, is Richard Thaler’s “Save More Tomorrow” program. It’s genius. It’s magic. I don’t know why everybody doesn’t do it, but they don’t. I think that’s the best way to help people save, and minimize lifestyle inflation. The fact is that, as people get promoted, they spend more and fail the save more.
Are there limits to what financial literacy can do and what’s the alternative?
One hundred percent there are limits. One of my ongoing beefs with financial literacy is that it simply isn’t enough. It’s not enough for people to know the terms of, say a loan, and to understand them. Instead, we need them to actually behave differently. I would rather have them behave in a way that serves their long-term self than know any of the definitions.
I don’t care if they “know” anything, I just want them to “do” the right things for their future. Think of it in a health-related context. Knowing that it is important to get outside and exercise, that your BMI should be less than 24, and that a chocolate bar has 400 calories… who cares? That doesn’t make any difference.
The difference happens when you just get outside and go for a nice walk every day and have a plate of food that is ½ vegetables, ¼ carbs, and ¼ protein. Just do that. You don’t have to know why.
In the case of savings, pay yourself first. Just do that. Eliminate your credit card debt to zero every single month. Just do that. We don’t need to have a big conversation about why. This can save everybody a whole lot of time.