Industry insider reflects on negative stigma around money and how to optimize savings account
Many investors freeze during RRSP season, paralysed by a perceived inadequacy when it comes to managing their finances.
A recent study by the British Columbia Securities Commission revealed that just 30% of Canadians identify themselves as an investor even though two-thirds of the country has investments.
David Dyck, WealthBar’s head of client services, told WP that these types of findings show the power of the negative stigma that exists around money, with people feeling they can’t manage their spending or have convinced themselves they are not smart enough to do the right thing.
This is particularly important when it comes to RRSP season and folk have the opportunity to swell their savings coffers and earn tax breaks.
Dyck said: “The worst thing it can do is make people freeze. They get uncertain, unclear and feel down about their money and they just do nothing, and that really is a missed opportunity to build wealth for the future, get a tax credit for the year and also to achieve those future goals that they’ve set themselves.”
He added that the greatest risk to an investor is that this can simply prevent them from saving, which has to be the starting point for everyone. Getting into the habit of putting money aside eases the anxiety, which can really hurt investment selection and how to manage your portfolio.
He said: “It can make you more susceptive to biases that can lead you to do things like panicking when there is a downturn and buying high and selling low. It’s the counterintuitive thing you shouldn’t be doing because you have these negative feeling, so you make irrational decisions that hurt the performance of your investment.”
All of this makes the role of an advisor even more important in providing additional hand-holding and getting clients to have a conversation about goals. He added that, rightly, it’s beyond most people’s financial literacy to go it alone.
He said: “We don’t expect people to self-diagnose their illness and we don’t expect people to fix their own cavities – we go to the professionals. People should feel the same way when it comes to financial planning; they are not expected to be an expert and know it all themselves.”
Dyck recommends saving in line with your pay schedule so you don’t notice it leave your account and added that optimizing your RRSP comes down to determining whether you are saving too much or too little.
He said: “A good point to start is to think if I want to spend the same amount now for the rest of your life, what do you need to do to make that happen? How much do I need to save to make that happen?
“For most people, that is going to tell them to save more than they are saving today. For some, it may show they have put too much in their RRSP and perhaps they should reduce how much they save to it and instead look at other accounts like a tax-free savings account or a non-registered investment account to better balance the overall mix of investments they have so they have more options when it comes to retiring.”
