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RSPs, Investments and Debts

September 5, 2017

Strange bedfellows on the face of it but there is a strong adverse relationship between savings and debt.

For several decades Canadians had great retirement opportunities through many larger employers, mostly manufacturing and other industrial companies with union negotiated pensions. Unfortunately, during the past 2-3 decades those opportunities have been eroded at an alarming rate. What were formerly defined benefit plans have been converted to defined contribution plans for most privately held companies with only government employees being fortunate enough to maintain the coveted defined benefit type.

The main beneficiaries of the movement away from such plans have been the banks and the financial industry on a whole. The government itself enjoined a campaign to promote and incentivize private investing which created a massive white collar industry of sales people disguised as investment advisers. Every time your investment adviser moves certain of your investments from one investment vehicle to another s/he is entitled to cut out a percentage as a commission.

Meanwhile most large manufacturing companies have been closing their doors in Canada and headed for cheaper offshore labour markets at a wholesale rate. Such globalisation has generated a zealous surge of union busting activity from coast to coast leaving the average worker unrepresented and to fend for him/herself. Recently the government has developed a variety of programmes making it easier to liquidate savings from RSPs and other forms of pension savings effectively making that retirement money available to a faltering economy. Citizens are actively encouraged to take risks with pension monies by investing into high ratio real estate mortgages and risky stock market ventures.

Recent media reports have indicated that more and more Canadians are saving less and less in RSPs as well as other long term investment plans. According to a CBC media release on a BMO report 1.3 million Canadians took money out of their RSPs in 2013 alone. While investing less we are also liquidating what meagre retirement plans we do have. Symbiotically Canadians’ apparent love affair with debt continues to grow and develop as RSPs are collapsed to allow entry into a potentially highly volatile real estate market where once again the winners are the mortgagees, funded by taxpayers. Canadian consumers are piling on debt in all quarters from credit cards to mortgages and car loans.

Perhaps the reintroduction of stringent bank regulations would help us all to navigate the economic mess that we are in. Perhaps we should have more restrictive policies regarding the withdrawal of retirement investments to encourage consumers to go the distance.

In our latest example of Canadian government anti-regulation, last week’s long term credit card repayment winner was the man with 275 years to repay his credit card with minimum monthly payments. What mindless policy maker created the rules that allow such usury in Canada’s mainstream banking?