I contribute to my RRSP all year long. Why do I get anxious about it now?

By Tinuke Oluyomi DanielPortrait of Tinuke Oluyomi Daniel.

It is that time of the year, when we quickly turn from enjoying all the fresh starts of the New Year to “Oh my! The RRSP deadline is this month!” It happens so fast you could get whiplash.

Without having a sit-down conversation with you, it is difficult to diagnose the exact source of your anxiety. That said, there are a number of features baked into RRSP season in Canada that can trigger cognitive biases that contribute to anxiety. Why should that make you feel better? Well, it means that you’re right that the reasons for your anxiety are perfectly irrational. Yes, that’s right: not rational. If you have been contributing to your registered retirement savings plan year-round, you should be able to sit back and let everyone else worry about their RRSP contributions. But that's definitely not the case. You're feeling the pinch. And that's exactly what the people who sell mutual funds and RRSP investments want you to feel. But there's another reason you should feel better now that you know your feelings aren't rational: It means there are definitely some behavioural tricks you can use to help alleviate your anxiety.

By my count, there are at least three cognitive biases that may be a source of anxiety for people when the RRSP deadline approaches. I’ll count them off and we can talk about some of the ways you can deal with them this season.

Scarcity Effect The distinguishing feature of RRSP season is its looming deadline: March 1. This is the date at which all your RRSP contributions for the 2017 fiscal year are due. (After that, you’ll have to wait until 2018 to claim them on your taxes and thus have to wait a whole year to reap the benefits of the deduction.) If you, like many people, find this stressful, it’s probably because you haven’t been thinking about your investments for a while, and that procrastination has made you feel like you don’t have enough time to get all your ducks in a row to meet the deadline. This is what psychologists refer to as a perception of time scarcity. And while most of us have experienced the stress of trying to meet a deadline with a late start, there is more to it than that. A number of studies headed up by the behavioural scientist Anuj K. Shah and his colleagues at the Booth School of Business at University of Chicago have shown that scarcity or even just the perception of scarcity is enough to trigger a mindset that can interrupt our critical thinking and cause us to focus on immediate needs. In other words, deadlines make us panic. And it’s a powerful marketing tactic. You may have already witnessed this if you’ve purchased theatre tickets online and been faced with a countdown threatening to release your tickets back to the general public if you don’t complete your transaction in time.

Messenger Effect For many people the anxiety of RRSP season isn’t just because of the deadline, but the number of news headlines and articles helpfully explaining how to get the most out of your RRSP contribution, or whether it’s better to tuck your money in a tax-free savings account instead. There is no shortage of expert opinions or correct ways to maximize your contribution strategy. This anxiety preys on something called messenger bias. Research shows that the weight we give to information depends greatly on the perceived authority of the source it’s coming from. So if a financial authority or even a friend you respect suggests an option to maximize your contribution sometime during the first 60 days of the year, you might find yourself scrambling to make that option work without checking first to see if that option is actually right for you and your financial situation.

Loss Aversion OK, here’s the feeling that may ultimately be driving your anxiety: If you don’t make the maximum RRSP contribution, you’re going to lose out on a huge tax return. The idea that you might lose out on something so near to your grasp activates our sense of loss aversion. A rich body of behavioural science research shows that we feel worse about losses than we do about equivalent gains. So the thought of an impending loss — of your own money! —if you don’t make the largest contribution possible may very well be what’s really stressing you out this season. A reduced willingness to choose riskier prospects in a lottery is often considered a good measure of loss aversion. In a 2017 study by researchers Qiqi Cheng and Guibeng He at Zhejiang University in Hangzhou, China, people were asked to choose between a smaller but certain amount of money today versus a lottery with higher risk but larger rewards in the future.The researchers modified the values and the probabilities of winning to see if it changed people's choices. The results showed that participants who made decisions for their future selves were less loss averse compared to those making decisions for their current selves. A 2017 study by Cheng and Hee showed that when people make decisions for their future selves they experience less intense emotions and feelings of loss aversion than when the decision-making is driven by present rewards. In other words, you’ll feel less anxiety if you focus your RRSP thinking more on how the savings will benefit you in the long-term than what you’ll be doing with the tax refund.

So what should you do now that you know you’re an irrational beast when your RRSP strategy comes down to the deadline? Here is a tip that might help you minimize the influence of time scarcity, messenger effect and loss aversion: Set aside some time to look at your RRSP contributions when you have the most cognitive bandwidth. That might be first thing on a Monday morning or over the weeked if that’s when you’re more alert and relaxed. Run some calculations. Decide for yourself if you can afford to top up your contributions — and if that’s even what you want to do. You may realize that you’ve been attending to your RRSP contributions just fine, you simply needed a moment of calm to confirm that’s the case.

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