BMO Annual Investment Survey: TFSA Usage Dips as Canadians Contend with Economic Concerns, Rising Costs and Managing Debt

• Basic monthly living expenses have increased by $397, on average, year-over-year according to respondents
• 68 per cent say their finances have been negatively impacted by economic conditions
• TFSA account balances increased 9 per cent from 2022 to 2023, among those surveyed

TORONTO, Jan. 18, 2024 /CNW/ - The latest BMO Annual Investment Survey reveals Tax-Free Savings Account (TFSA) usage has declined from last year as most Canadians (68 per cent) say current economic conditions are negatively affecting their finances. The survey data indicates TFSA usage is around 62 per cent, down from 66 per cent last year and below the 2018 peak of 69 per cent.

BMO Annual Investment Survey Highlights:

• Increased Cost of Living: Basic monthly living expenses have increased by $397 year-over-year, on average, among those surveyed.
  
  
• Budgeting: More than half of Canadians are spending less on discretionary items: eating out (57 per cent), travel (53 per cent) and clothing (53 per cent).
  
  
• Prioritizing Debt Management: Paying off debt is a primary reason almost one quarter of Canadians (24 per cent) are not investing this year. Millennials (ages 28 to 44) are the generation most focused on paying off debt rather than investing (42 per cent).

"Despite rising costs of living and other economic challenges, Canadians who can, should continue to make investing a priority," said Nicole Ow, Head, Retail Investments, BMO. "Among the benefits of investing in a TFSA is the ability to withdraw funds at any time should those funds be needed. This flexibility makes the TFSA an excellent investment vehicle, especially during times of economic uncertainty. Over the years, investors using the TFSA have been rewarded with tax-free returns, helping many Canadians achieve greater progress towards their financial goals."

TFSA balances on the rise

Of those with a TFSA, the survey indicated overall balances are on the rise, increasing 9 per cent to $41,510 in 2023. According to the survey, the total amount Canadians have in their TFSA has risen steadily over the last six years:

Mean TFSA Account Balances

2023	$41,510
2022	$38,046
2021	$34,917
2020	$30,921
2019	$28,214
2018	$27,053

For those planning to make TFSA contributions, 19 per cent plan to contribute more money this year, 26 per cent plan to contribute less, 46 per cent plan to contribute the same amount and 9 per cent were unsure. Gen Z (ages 18 to 27) are the most likely among the generations to increase contributions, with 33 per cent planning to put more into their TFSA this year.

The latest research also shows that while 53 per cent of TFSA owners hold investments in their account, the remaining 47 per cent have their savings in cash and could be missing out on opportunities for enhanced tax-free growth. TFSAs offer Canadians investment options beyond a savings account, and various other investments beyond cash can be held in a TFSA such as GICs, mutual funds, ETFs, stocks, and bonds. 

Despite current economic conditions, some relief may be on the way

While most Canadians say the economy is negatively affecting their finances, improving economic conditions overall may pull the country back from the brink of a recession or mute its severity, according to BMO Economics. Additionally, while consumer spending will likely remain flat throughout the rest of the winter, BMO Economics says expected interest rate reductions in the near future may help ease the current economic environment.

"The results from this survey are understandable given prevailing economic conditions," said Robert Kavcic, Senior Economist, BMO. "Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment. But on a positive note, easing financial conditions into 2024 should support the economy, and expected rate cuts from the Bank of Canada starting in the summer would only help."

For more information about BMO's Tax-Free Savings Accounts (TFSAs), please visit: bmo.com/main/personal/investments/tfsa/.

Methodology

This study was conducted by Pollara Strategic Insights via an online survey of 1,510 adult Canadians, between November 3rd – 8th, 2023. The margin of error for a probability sample of this size is ± 2.5%, 19 times out of 20.

About BMO Financial Group

BMO Financial Group is the eighth largest bank in North America by assets, with total assets of $1.3 trillion as of October 31, 2023. Serving customers for 200 years and counting, BMO is a diverse team of highly engaged employees providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services to 13 million customers across Canada, the United States, and in select markets globally. Driven by a single purpose, to Boldly Grow the Good in business and life, BMO is committed to driving positive change in the world, and making progress for a thriving economy, sustainable future, and inclusive society.

SOURCE BMO Financial Group

Media Contact: Aaron Sobeski, Toronto, [email protected], [phone]