Dad, mom or app – what most influences retirement saving?

February 28, 2017 Globe and Mail

By: Gail Johnson

Madeleine Clerides credits her father for instilling in her a keen awareness of finances. The 22-year-old Vancouver native admits that she has more to learn about money matters, but, as she embarks on her career, she’s determined to be smart about saving and spending.

“Now that I’m getting my footing in Vancouver, I’m really trying to still have fun and be 22 but do the best I can managing money, because I know it’s important to start the habits now,” Ms. Clerides says.

“My dad had no sisters, and he doesn’t get that I get my hair done every three months; he thinks that’s insane,” she adds. “If I get my nails done … he’s like, ‘You don’t need to have your nails done; that’s excessive! That’s wasteful!’ He’s always been the person on my shoulder that’s like, ‘Do you need that? Are you saving? Did you overspend?’ He’s been a stickler since I was a kid.”

Ms. Clerides, a recent global studies graduate of University of California, Santa Barbara, who is interning at a Vancouver public-relations firm, concedes that, even if she sometimes wants to roll her eyes, she takes her dad’s advice to heart.

While she likes shopping, she’s not one to spend extravagantly. She also uses her bank’s mobile app to help stay on track, an approach her mom urged her to try. Ms. Clerides likes to see instantly what her account balance is and how quickly little purchases can add up. One of the items on her to-do list is to set up automatic withdrawals, with a portion of her paycheque going straight into a separate savings account.

“As I’ve just graduated and started to get to work I’ve managed to save very minimally, but I think what I’d like to do going forward … is to save 20 per cent of everything I make,” she says. “I think that [automated saving] would be best for me because then the money is not staring me in the face. It just goes.”

While neither the concept of paying yourself first nor doing so automatically is new, it’s possible that the need for both has never been greater.

According to a 2016 Broadbent Institute study, Canadians are approaching retirement with “wholly inadequate” savings, with the country in a retirement-income “crisis.” Among people aged 55 to 64 with no accrued employer pension benefits, roughly half have savings that represent less than a single year’s worth of the resources they need to supplement OAS/GIS and CPP/QPP.

Technology such as mobile apps and automated savings via online banking may have helped reshape the savings landscape, but it seems that good, old-fashioned advice from older generations still reigns when it comes to helping young people find their financial footing.

Ms. Clerides’s dad, John, learned the importance of saving from his own father, now 90. The elder man grew up in the mountains of Cyprus and came to Canada in 1952, going on to become a successful businessman.

“Whenever he gave me an allowance, he said, ‘Save it,’” says Mr. Clerides, 57, who owns a wine shop in Vancouver. “By the time I was 10 or 12, I probably had three to five thousand dollars in the bank, all from pop bottles and other stuff I squirrelled away over the years.

“When I graduated from high school, I ended up working for him in his restaurant, and the first thing he did was say, ‘You’ve got to put money into your RRSP.’”

That was 1977. The 17-year-old saved $180 – half of his monthly net income – every month. “It just became de facto, like I never had it. I kept adding to it.”

Mr. Clerides, who gave his daughter a copy of The Wealthy Barber Returns for Christmas, also urges his children to differentiate between needs and wants. “The thing with savings is it has to start early,” he says. “Pay yourself first. Do you really need that 128-gig phone or can you go with something a little less? Suck it up.”

Financial experts agree that the importance of instilling in young people the benefits of automated savings can’t be emphasized enough.

“I think it’s critical,” says Jeffery Schwartz, CEO of Consolidated Credit Counseling Services of Canada Inc.

“We’ve gotten too far away from saving. There’s so much competing for our attention that we’ve created a ‘I see it, I want it, I buy it now’ attitude, and it’s not leaving much in the way of room for savings. The automated part of it is huge because it’s almost like ‘out of sight, out of mind.’ ”

Oftentimes, people are discouraged from putting money aside because they feel they simply can’t, a perspective that Mr. Schwartz says can be changed.

“If we start small – even if it’s five, 10, or 20 dollars out of each paycheque – and we’re making do with what we have, we can increase that number over time,” he says. “These are behaviour-changing attitudes.” When you pay yourself first automatically – even if it’s just a little bit – it can help eradicate some of those issues around creating debt because of unexpected expenses.

“If we see, through apps and online banking, our savings growing, and we didn’t think we could ever do that, it’s a real feeling of accomplishment,” he adds. “There’s incentive there.”

Apps such as Mint and Manulife’s Goalkeeper not only provide account information but also let users track their spending and show them how close they are to reaching their money-related goals. It’s that real-time information that comes with constant reinforcement that helps people, particularly tech-savvy millennials, stay on track.

Chris Catliff, CEO and president of BlueShore Financial, a credit union headquartered in North Vancouver, says that establishing customized, automated savings – the ability to “set it up and forget about it” – is a far more effective strategy than a lump-sum RRSP contribution every year, and not just because it doesn’t involve a late-February scramble. Rather, regular deposits (most people do bi-weekly, he says) allow for dollar-cost averaging and, started early in life, the power of compounding.

“Small savings produce big rewards over time,” Mr. Catliff says. “It’s a very disciplined strategy, and the thing I like about it is it takes out the stress of buying in whether the market goes up or down; it eliminates all the stress of market timing.

“You’re also leveraging the power of compounding,” he adds, providing an example: If you put $100 aside biweekly beginning at age 20, you’d have $300,000 at retirement assuming an interest rate of 4 per cent. If you start 15 years later with the same amount, you’d have less than half, or $140,000.

Mr. Catliff advises his own grown kids to maximize their RRSP contributions and to automate the process. He suggests that the ability to tap, swipe and click only goes so far when it comes to saving for retirement and money management in general.

“As a rule of thumb, I would say mobile apps and online banking are great for transactions but not for advice,” he says.

“There’s this idea that millennials would want to do everything automated online, self-serve, but we’re just not seeing it. They still want to come to a branch, they still talk to their parents. Advice is still done best with somebody you trust and have built up a long-term relationship with.”

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