When I first heard that the “household savings rate” is 5%, I thought this meant the average family saved 5% of their income toward retirement. Maybe you thought the same thing. Boy was I wrong.
Malcolm Hamilton’s recent criticism of the Ontario government’s assertion that Canadians save too little (full paper here) got quite a bit of attention. I’m still unsure of whether Canadians have a retirement savings problem, but I’m confident that the household savings rate measure is very misleading.
Hamilton describes a number of problems with this measure, but to see that it is misleading you only have to understand one of the problems. After people retire and begin to draw retirement income from their RRSPs, this counts as a negative household saving rate. So, even if I saved 25% of my income throughout my working life, I count as a spendthrift after I retire.
This makes it clear that “household savings rate” doesn’t mean anything close to the average percentage of income that Canadians save toward retirement. If we’re going to have a sensible discussion of programs for mandatory and voluntary retirement savings, we have to at least start with meaningful information about how much people are actually saving.
In fact, we need to get beyond average figures and look at the distribution of retirement savings amounts for each income range to identify groups who may be in trouble. Such an approach could lead to sensible new retirement policies. Misleading measures and speaking only in averages won’t get us anywhere.