The reasons Canadians aren’t saving for retirement may have less to do with the economic recession and unsettled markets and more to do with instant gratification and information overload, reveals a new report from Toronto-based Bank of Montreal’s Retirement Institute.

The report — entitled Retirement Planning: Can I Get Back To You On That? — is based on an online survey of more than 2,000 Canadians aged 35 years and older, conducted this past spring for BMO by the Strategic Counsel of Toronto.

Some financial advisors, however, are split on the merits of the psychological analysis, which found that there are four key behavioural finance obstacles to retirement saving:

> Hyperbolic Discounting. In other words, when Canadians want something, they want it now. The report suggests that the reluctance to wait for rewards is keeping consumers from saving for tomorrow.

Although 82% of respondents in the survey acknowledged the importance of saving early for retirement, more than eight in 10 who have not set aside any savings said they were more concerned about current needs.

“People tend to place less value on a reward in the future than a benefit today,” the report states. “This tendency to discount the future benefit encourages procrastination and explains, in part, why people use credit cards yet fail to save for retirement.”

The desire to have something now rather than later is human nature, says Peter Merrick, a certified financial planner in Toronto and president of MerrickWealth.com: “Our programming is not to think far ahead. We have to step outside this.”

Dreams, however, do butt heads with reality — and the current reality for many Canadians is bleak. “When you’re worried about your job, you’re living for today,” notes Mike Himmelman, an investment advisor with Citadel Securities Inc. in Halifax. Even individuals secure in their jobs, he adds, are insecure about the economy: “After a while, the investing public gets a little leery. They stay on the sidelines.”

> Paralysis Of Choice. This basically means: when in doubt, people do nothing. The doubt, in the case of retirement planning, is caused not by a lack of information but by an avalanche of it.
@page_break@The BMO report found that more than one-third of non-retirees surveyed reported that they have been overwhelmed by too much information and that this has been an obstacle or challenge to their retirement savings plans.

“The more choice you have, the more [you] don’t know where to go,” says Merrick. “As an advisor, you need to help.”

For Himmelman, the problem isn’t information overload; it’s options underload. “There is a lack of choice,” he says. “Bonds are barely keeping up with inflation. The stock market doesn’t go up and up and up anymore.”

This discourages clients — who are already prone to spending — from saving. “The market is risky and people are risk-averse,” says Himmelman. “The live-for-today attitude has been ingrained.”

> Lack Of Vividness. People don’t work toward what they can’t imagine. “If individuals cannot picture themselves as retirees, they find it difficult to sacrifice things today for that uncertain future,” the BMO report states. “If, on the other hand, they have a vivid picture of themselves in the future, they are more likely to provide for their future selves.”

The advisor’s role is to make the dream real, says Merrick: “That’s why a plan is so important — and it has to be personal.”

The savings made today have to be connected to a dream clients have for tomorrow, such as owning a cottage by the lake. “It can’t be airy-fairy. That is missing from a lot of plans,” says Merrick. “The specific [dreams] will constantly change, but it is always attached to their values.”

> The Curse Of Knowledge. This is where advisors come under fire. Says the report: “People who know a lot sometimes find it hard to imagine how little others know.”

A lack of common ground puts advisors at a distance from their clients, the report concludes: “This bias makes it hard to understand perspectives that are not based on the same level of knowledge — a recurring problem for teachers, but something to which anyone who provides advice can be prone, including financial advisors, who need to remind themselves, perhaps, when their clients hesitate to make an ‘obvious’ financial decision, that they should not be expected to have the same level of knowledge or experience as the advisor.”

Advisors need to share that knowledge from the client’s perspective, says Himmelman: “We’re faced with a lot of change. People need things explained in a way they will understand.”

Adds Merrick: “The advisor has to be trained to ask the right questions and speak the right language.”

A shared language is the first step to building a long-term relationship, he adds: “It’s about trust. That is the key to anything.” IE