Canadian advisors are beating their heads against a wall, as clients insist on tapping into their RSPs to tackle debt.
This trend is one of the gruelling challenges facing advisors today, as Canadians continue to overspend and live beyond their means.
“I’m seeing more money coming out than going into these plans,” says financial educator and owner of retirehappy.ca, Jim Yih. “It’s creating a new set of problems in our society.”
According to Yih, in a culture of spending, or overspending, “the definition of emergency has changed dramatically” (you ‘need’ that trip or new car), fast forwarding people into debt overload.
“A lot of people are taking it (money) out for the wrong reasons,” says Yih. “You want to go to Hawaii, so you just put it on the credit card, your car broke down, you need a new fridge... then you need to get (the debt) paid down, so you might as well take it out of the RSP and pay it off.”
Toronto-based financial advisor, Sudhir Bhalla, is seeing the same behaviour from his clientele, who, he says, are unaware of the long-term consequences.
“People are living pay cheque to pay cheque, so if they have to pay for anything extra, they don’t have any savings and they are stuck,” he explains. “They don’t realize the lost opportunity and the taxes they will pay. It’s very difficult to convince them.” (continued.)