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Canadians make the shift to thrift
Категория: «Finances » Credit and Debt>» »
Viewed: [162] | Comments: [0] | 2-02-2010, 00:58
Spend like there's no tomorrow or save till it hurts? Now that the recession is here, once free-spending Canadians have made the shift to thrift.
Patricia Lovett-Reid
Before this current recession started, Canadians were on a shopping spree. We bought cars and cottages, we spent on renos and restaurants, we bought new furniture and the latest fashions. As a result many of us became over extended with debt and saved too little. Now that the economy is in a recession, this period of consumerism has ended.Now, we've become thrifty. The household savings rate rose to a six year high of 4.7 per cent by the end of 2008. It's important to put this statistic into context. The 1960s where characterized by relatively low and stable inflation and the personal savings rate averaged 6.7 per cent. It soared to a peak of 20 per cent in the 1970s and '80s as economic instability prevailed along with rising inflation. The Bank of Canada put inflation in its crosshairs and created a greater sense of certainty around future income and purchasing power. The need for precautionary savings decreased as did the savings rate.
In 2009, fears over plunging stock markets, falling home prices, and mounting job losses have led us to tighten our belts. The question is: will it last or will Canadians resume the shopping spree once the economy emerges from this recession? According to TD Economics, the answer is no. Based on their outlook for the economy and other factors affecting the personal savings rate, they say the personal savings rate will hover in the 6-7 per cent range. Saving is back in style.
In fact, the latest data from Statistics Canada indicates that we're sticking to the essentials. Canadian retail sales increased a meagre 0.3 per cent in March. But sales at food and beverage stores rose for the third straight month. Part of that is due to higher prices. But it also reflects a reality. Recession or not, we have to eat.
Home electronics, appliances, shoes, clothing and jewellery sales are all down. All the uncertainty about the future has made us shy away from purchases that don't seem absolutely necessary.
Are our financial houses in order? According to the Certified General Accountants Association of Canada, Canadian household debt has reached an all-time high of $1.3 Trillion!
The report also finds that Canadian families are taking on more and more debt just to cover their day-to-day living expenses. Here's the troubling part: Canadians believe their financial condition is better than it actually is - a serious disconnect from reality that has serious financial implications for Canadian families.
Households now have 24.5 cents of debt for every dollar of net-worth. This is up from 21 cents in 2004.
Given the economic uncertainty, with only modest economic growth on the horizon, consumers would do well to keep a lid on borrowing. While using credit cards can make spending seem painless, it's important to keep a few rules in mind.
First, distinguish what you need from what you want. Don't use debt to pay for your wants. Pay down your credit card and other high interest debt first. Refinance mortgages wherever possible to take advantage of historically low rates.
It's important to keep some perspective. While upping your savings and lowering rates is a good thing, remember not all debt is bad. Debt used to further your human capital by investing in education, or borrowing to diversify your portfolio (as opposed to speculating on risky stocks) are examples of good debt.
In the end, it's all about balance. You needn't spend like there's no tomorrow, nor do you need to save till it hurts.
Patricia Lovett-Reid
Before this current recession started, Canadians were on a shopping spree. We bought cars and cottages, we spent on renos and restaurants, we bought new furniture and the latest fashions. As a result many of us became over extended with debt and saved too little. Now that the economy is in a recession, this period of consumerism has ended.Now, we've become thrifty. The household savings rate rose to a six year high of 4.7 per cent by the end of 2008. It's important to put this statistic into context. The 1960s where characterized by relatively low and stable inflation and the personal savings rate averaged 6.7 per cent. It soared to a peak of 20 per cent in the 1970s and '80s as economic instability prevailed along with rising inflation. The Bank of Canada put inflation in its crosshairs and created a greater sense of certainty around future income and purchasing power. The need for precautionary savings decreased as did the savings rate.
In 2009, fears over plunging stock markets, falling home prices, and mounting job losses have led us to tighten our belts. The question is: will it last or will Canadians resume the shopping spree once the economy emerges from this recession? According to TD Economics, the answer is no. Based on their outlook for the economy and other factors affecting the personal savings rate, they say the personal savings rate will hover in the 6-7 per cent range. Saving is back in style.
In fact, the latest data from Statistics Canada indicates that we're sticking to the essentials. Canadian retail sales increased a meagre 0.3 per cent in March. But sales at food and beverage stores rose for the third straight month. Part of that is due to higher prices. But it also reflects a reality. Recession or not, we have to eat.
Home electronics, appliances, shoes, clothing and jewellery sales are all down. All the uncertainty about the future has made us shy away from purchases that don't seem absolutely necessary.
Are our financial houses in order? According to the Certified General Accountants Association of Canada, Canadian household debt has reached an all-time high of $1.3 Trillion!
The report also finds that Canadian families are taking on more and more debt just to cover their day-to-day living expenses. Here's the troubling part: Canadians believe their financial condition is better than it actually is - a serious disconnect from reality that has serious financial implications for Canadian families.
Households now have 24.5 cents of debt for every dollar of net-worth. This is up from 21 cents in 2004.
Given the economic uncertainty, with only modest economic growth on the horizon, consumers would do well to keep a lid on borrowing. While using credit cards can make spending seem painless, it's important to keep a few rules in mind.
First, distinguish what you need from what you want. Don't use debt to pay for your wants. Pay down your credit card and other high interest debt first. Refinance mortgages wherever possible to take advantage of historically low rates.
It's important to keep some perspective. While upping your savings and lowering rates is a good thing, remember not all debt is bad. Debt used to further your human capital by investing in education, or borrowing to diversify your portfolio (as opposed to speculating on risky stocks) are examples of good debt.
In the end, it's all about balance. You needn't spend like there's no tomorrow, nor do you need to save till it hurts.