As the RRSP deadline approaches, for a lot of us hearing the words "don't forget to contribute" is becoming a little annoying. But for some it's still confusing, not only figuring out if it makes sense to contribute but also who to ask for advice.
As credit card balances have climbed more than 20% year-over-year since 2000 to present day, by this February Canadians will owe more than $100 billion on their credit cards compared with only $13.2 billion in 2000. According to Stats Canada, the average household today owes $1.77 for every dollar earned. But for those who have larger than normal debt burdens, the decision to contribute to save on taxes compared to reducing debt is still not obvious.
The bottom line. Tax savings aside, a dollar invested in paying down higher-interest debt always beats a dollar invested. There is no investment that can generate a guaranteed return close to the debt % rate of a credit card balance.
But again, a huge portion of us, especially those with bad debt don't not know this simple pretty simple answer. So where are those in need to turn for help?
Wouldn't a good solution be to have financial education and support for debt reduction offered directly from where the money is being earned in the first place? As a benefit to the employee from the employer. If an employee has tooth pain, their dental benefit ensures it gets looked at. Why can't a pain in their wallet be treated the same way?
An employer led program to help employees not only retire bad debt, but to also provide guided financial education could be a real game changer in helping a large part of the population better understand these type of financial decisions. Today, even if a person asks a registered investment advisers for advice they are not required to recommend paying down debt as an alternative to an RRSP contribution - even when it is clearly obvious that's the correct path to take.
Employer led financial education services, like those provided by Benefi can help employees feel comfortable in starting down a path to better financial literacy. An employer led benefit program would also ensure that these type of issues are looked at more than just once a year.
The end result will no doubt be a lot more of us actually contributing to an RRSP annually because it would mean a lot less of us are dealing with ongoing bad debt.