Perceived TFSA knowledge and average annual contributions have increased, but shortfalls remain
In a recent study of RRSP use, BMO revealed that contributions have dipped because of several factors, including a shift toward TFSAs. The firm has delved deeper into TFSAs through a new report, which showed growth — as well as gaps — in Canadians’ TFSA use and knowledge.
According to BMO’s latest annual TFSA report, conducted by Pollara, 73% of Canadians consider themselves at least somewhat knowledgeable about them, as compared to 70% from a year before. The average annual contribution amount has also risen 8.6%, from $4,592 to $4,989, and the proportion of Canadians maxing out their TFSA contributions has gone from 15% to 17%.
Still, the study found persistent gaps in knowledge. Thirty-four per cent still were not aware that they could incur a penalty tax for over-contributing to their accounts, while 42% believed contribution limits were linked to income. Knowledge of TFSA-eligible investments was also lacking, as 45% weren’t aware of or incorrectly identified which investments could be put in a TFSA.
While 82% of Canadians either had or planned to set up a TFSA, only 25% correctly identified $5,500 as the maximum annual contribution amount, and 35% didn’t know the maximum contribution amount at all.
And just like RRSPs, TFSAs aren’t being used to their full potential. “[O]nly a small group is maximizing the full benefits of their TFSAs,” said Ryan ffrench, director for Term Investments, at BMO Bank of Montreal. “Similarly to last year, we're hearing the overwhelming reason for that is not having enough to invest more than they already are.” Another top reason was the need to pay for other things.
People’s lack of money was also reflected in the top uses of TFSAs. The desire for an “emergency fund” was common across all age groups; millennials favoured using the accounts to save up for major purchases, while those between 35 and 54 were focused on saving for retirement.
