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Almost one in five Canadians say they don't understand the benefits of the TFSA
Canadians 55+ are the biggest users and contributors to the category
TORONTO, October 3, 2011 /Canada NewsWire/ - It's been almost three years since the Federal Government introduced Tax-Free Savings Accounts (TFSAs), but a new survey from ING DIRECT reveals the majority of Canadians are still unclear about them. Those surveyed indicated they have a vague idea (37%) or don't understand how the TFSA works (14%), while 13% of Canadians said they don't know what a TFSA is.
A similar survey conducted in 2008 found 39% of Canadians had a vague idea about the TFSA, suggesting awareness hasn't increased that much in the last three years.
"The Tax-Free Savings Account is the most important savings vehicle we've been given since the RRSP was introduced in the 1950s, so it's discouraging that Canadians still aren't fully aware of it," said Peter Aceto, President and CEO of ING DIRECT Canada. "Also, less than half of Canadians say they have a TFSA, meaning the majority of us still aren't taking advantage of saving tax-free."
Who's using the TFSA?
...Of the 41% of Canadians who have a TFSA, 46% earn $100K+ per year, versus 34% who earn less than $50K.
...Of the Canadians who have a TFSA, those aged 35-54 are least represented at 36% versus older (48%) and younger (40%) age brackets.
...Older Canadians (55+) indicated they fully understand what a TFSA is, versus 28% of those 18-34 years and 31% of those 35-54 years.
...56% of those aged 35-55+ indicated they use their TFSA for retirement savings versus 11% of those aged 18-34.
...Those aged 55+ have used more than half the contribution room available ($8,395) whereas those aged 18-34 have used less than a third of the contribution available ($4,538).
Canadians see the TFSA as long-term investment, but treat it as a regular savings account
Seventy per cent of Canadians said they felt the TFSA was a long-term savings vehicle, however only 24% of respondents indicated they use the TFSA primarily for retirement savings. Almost half of Canadians (48%) say their TFSA is just another way of saving money, while 10% use their TFSAs as an emergency fund.
The survey also revealed that more Canadians are dipping into their TFSAs, with 31% of respondents admitting they've made a withdrawal from their account since they started saving, up from 20% last year. Those who withdrew funds said they needed the money for an emergency (54%), they used their TFSA to save for a goal and achieved it (17%) or they use their TFSA as a regular savings account (17%).
When asked what they would like the annual maximum TFSA contribution amount to be if they could choose to change it, a surprising number of Canadians (51%) indicated they would opt to increase the limit, with the largest percentage of respondents (19%) preferring to have $7,501 - $10,000 in annual contribution room. Despite wanting the option to increase their annual limits, only one in 10 Canadians has contributed close to the maximum contribution limit ($14,001 - $15,000). A quarter of Canadians have contributed less than half of their available TFSA contribution room.
"Canadians should really think of the TFSA as another vehicle through which they can build their investment portfolio," said Aceto. "As the contribution room grows each year, so do the benefits. Contributing early means you're taking advantage of both compound and tax-free interest."
ING DIRECT is Canada's leading direct bank with over 1.7 million Clients and more than $37.6 billion in total assets. ING DIRECT gives the power of saving to all Canadians by offering high-value, simple products such as high interest savings accounts with no fees or service charges, low rates on mortgages and a no-fee daily chequing account that actually pays interest. Low cost, index based mutual funds are sold through ING DIRECT Funds Limited. ING DIRECT has been operating in Canada since 1997 and paid more than $5 billion in interest to Clients. ING DIRECT is open for banking 24 hours a day, 7 days a week, at ingdirect.ca, on mobile devices at m.ingdirect.ca or by calling 1-800 ING DIRECT (1-800-464-3743).
About the Survey
From September 20 - September 21, an online survey was conducted among 1668 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error—which measures sampling variability—is +/- 3.1%, 19 times out of 20. The results have been statistically weighted according to the most current education, age, gender and region Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.