BMO, TD reports highlight the continued strain faced by households
Canadians have cut back their usage of Tax-Free Savings Accounts (TSFAs) as they continue to face difficult choices of how best to use their money.
Newly released surveys from Canadian big six banks highlight the challenges for personal finances including a pessimistic outlook for this year from many respondents.
BMO’s poll focuses on the use of TSFAs and reveals that 62% of respondents used their accounts in 2023 (the survey was conducted in November), down from 66% a year earlier and the 69% peak seen in 2018.
However, average balances did continue their upward trend, reaching $41,510 in 2023, up 9% year-over-year.
Around one in five (19%) poll participants are planning to contribute more to their TFSA this year but that’s below the 26% who plan to save less, and 46% who will keep contributions the same as last year.
There is also a significant share who are holding their savings in cash (47%) rather than utilizing accounts that offer tax-free benefits (53%).
The lower usage reflects the survey’s findings that current economic conditions – and high levels of household debt - are forcing Canadians to prioritize paying down debt (24%) rather than investing and this rises to 42% among millennials.
For context, respondents’ average cost of basic monthly living expenses has risen $397 on average year-over-year, necessitating measures including spending less on discretionary items such as eating out (57%), travel (53%) and clothing (53%).
“The results from this survey are understandable given prevailing economic conditions,” said Robert Kavcic, Senior Economist, BMO. “Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment. But on a positive note, easing financial conditions into 2024 should support the economy, and expected rate cuts from the Bank of Canada starting in the summer would only help.”
Weak outlook for 2024
A separate poll from TD found that many Canadians are pessimistic about the near-term outlook for their personal finances.
More than one third of respondents believe their finances will be worse this year than last with just 19% thinking they will be better off. This is based on responses from those who have been in Canada for more than five years, while the subset who have been in the country for a shorter time are more optimistic with 67% feeling more positive than last year and just 15% more pessimistic.
The differences in sentiment among these two groups is perhaps explained by the higher levels of newer Canadians using tools and behaviours to improve their financial outlook:
- 97% of new Canadians have a financial new year’s resolution, compared to 59% of established Canadians.
- 92% of new Canadians plan to cut their spending, compared with only 55% of established Canadians.
- Of new Canadians who meet with a qualified financial professional, 53% do so at least once per quarter, while 43% of established Canadians only do so once a year.
- New Canadians are also more likely to take advantage of budgeting tools like a spreadsheet or mobile app to help with their finances (66% vs. 29% of established Canadians).
“Respondents with a more optimistic financial outlook tended to take proactive steps to ensure their financial stability and success, such as an increased focus on planning and professional advice", said Emily Ross, VP, Everyday Advice Journey at TD. “We know that measures like making financial resolutions, budgeting, using financial tools and meeting regularly with a qualified financial professional, are all effective ways to better ensure the security of your financial future, especially in challenging times."
