Want to help employees save for retirement?

Canadians owe an average of $1.64 for every $1 of disposable income, says a September 2014 report from Statistics Canada. Interest rates are low, and Canadians are taking advantage with big mortgages and long-term vehicle loans. The tab is reaching an all-time high. When Statistics Canada began tracking debt-to-income ratios in 1990, the number was 85.3%. With the ratio nearly doubling to 163.6% in 2014, the Bank of Canada is worried.

Read: Why don’t plan members take free money?

Pension plan sponsors should also worry, since debt is putting employees’ retirement at risk and affecting their ability to maximize their workplace retirement savings plans. An October 2014 Conference Board of Canada report shows 60% of those surveyed couldn’t comfortably retire with the money they had set aside. When the survey zeroed in on those on the cusp of retirement—Canadians between ages 55 and 64—it found they’re in no better shape than the rest of the population. Nearly 60% didn’t have enough funds saved for retirement.

Controlling debt today is the first step to creating a healthy retirement tomorrow. Here are four tips for employers to communicate to employees.

Read: Debt stops Canadians from saving for retirement

1. Make a budget and stick to it. Many people don’t follow a budget or have a financial plan because they consider it restrictive. But a budget is actually liberating. Communicate the concept of financial freedom to employees by pointing out how a budget helps them focus on eliminating debt and finding extra funds for retirement. Encourage the use of free budgeting apps, such as Spending Tracker, and direct employees toward some of the great financial literacy websites out there, such as ProsperCanada.org.

2. Don’t make just the minimum payments. To put aside enough money for their golden years and be debt-free by the time they retire, employees will have to make more than the minimum monthly payments on their credit card bills, which typically cover just the interest. Steer your employees off the minimum-payment treadmill with a dose of reality by encouraging them to use free online debt calculators, which are widely available on bank and personal finance websites. These calculators show how long it takes to pay back credit bills if people make only the minimum payments

3. Tackle student debt. A 2014 CIBC survey found half of Canadian college and university students had to borrow to fund their education, and 40% of those expect to have more than $25,000 in student debt by the time they graduate. Your young employees likely have student debt, but help is available. The federal government’s National Student Loan Service Centre offers the Repayment Assistance Plan, which can lower or even temporarily eliminate monthly payments, allowing these employees to focus more on future financial milestones.

Read: Ontarians put debt reduction ahead of retirement savings

Top 3 reasons…

…why Canadians don’t contribute to their workplace DC pension plans or group RRSPs:

20% prefer to pay down debt first

20% prefer other personal savings plans/ instruments

19% can’t afford it Source:

Benefits Canada’s 2014 CAP Member Survey

4. Get help. Including debt counselling services in your employee and family assistance program will help employees assess their budgets and determine next steps. The EFAP can connect employees with extreme debt difficulties to non-profit credit counselling services. These entities can potentially negotiate with creditors on behalf of employees to lower their monthly payments, cut interest rates, waive penalties and minimize damage to their credit rating.

Helping your employees break free from the chains of debt will give them more financial freedom and make it easier for them to save for retirement. Start with a lunch-and-learn and hammer home the message that debt actually is within their control.

Jeffrey Schwartz is the executive director of Consolidated Credit Counseling Services of Canada.

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