"Financial vulnerabilities have increased as a result. Canadians are now as indebted (relative to their income) as the Americans and the British. The Bank estimates that the proportion of Canadian households that would be highly vulnerable to an adverse economic shock has risen to its highest level in nine years, despite improving economic conditions and the ongoing low level of interest rates. This partly reflects the fact that the increase in aggregate household debt over the past decade has been driven by households with the highest debt levels.Spending and savings habits have changed in Canada, much of it as a result of an increasing demand to consume goods have more experiences (like vacations) throughout a lifetime. These changes in behavior have raised concerns for economists and financial advisors alike. I am also concerned, but recent statistics and surveys have revealed how this increase in spending and decrease in savings is impacting people: People are working longer - While Freedom 55 sounds nice, the reality is that most people will not retire in their 50's, and many will be working into their late 60's. Baby Boomers are realizing that they may not be able to afford everything they had hoped for, so many are finding jobs they enjoy that they can do part time to supplement their retirement income.
There are some offsets. Debt is largely fixed rate and household net worth is at an all-time high. However, borrowers should remember that a fixed-rate mortgage will reprice a number of times over the life of the mortgage and, while asset prices can rise and fall, debt endures.
The fact that the “official” personal savings rate in Canada has remained consistently positive is of limited comfort. The personal savings rate has fallen to historically low levels, despite the fact that the baby-boom generation is entering its highest saving years. Adjusting for housing expenditures, Canadian households have now collectively run a net financial deficit for 40 consecutive quarters, in effect, demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s."
In the United States people have responded by reducing debt and increasing their savings rate, a reverse of the trend that started in the mid 1990's and went until 2007. Canadians have not started doing this, yet. I think if jobs recover well in the next year most Canadians will continue to spend, but if there is increased fear about jobs Canadians will start to change their habits.
The whole point of this blog is to encourage and hopefully educate people about being responsible with their money. We hope that through good financial management that everyone can enjoy a life with less stress caused by debt and greater peace of mind as a result of sound investments, good planning, and not needing to rely on an ever-changing government for your retirement funds. The Governor of the Bank of Canada has some concerns about Canadians financial behavior, and I hope everyone can take advantage of the low rates today to pay down debt quickly and be prepared to invest as the opportunities arise. Jerry
Jerry, you are so negative. So what if we have debt? So what if we haven't saved a million dollars by retirement? You need to enjoy life! I can't imagine being your kids. Do you let them have any fun? Around here Quads and RVs are standard fun. If you have to borrow to buy them, so what? And why can't I go to Mexico every year? I enjoy it. It's relaxing. Life is to enjoy. If it takes a little bit of debt, so be it. If it takes a bigger mortgage to get the house I want, why not? I'm going to live in it for a long time. You need to lighten up.
ReplyDeleteTim, I completely agree that life is meant for living and to be enjoyed. I want to stress, however, that I think by living within our means while we are working, and investing for our retirement will mean we will have happiness throughout our life. Living only to enjoy life today can end up meaning we live from government cheque to cheque in retirement of a long time. I've seen it, and I wouldn't curse anyone to spend their senior years living that way. I would rather encourage good money management so people can enjoy every year of life rather than live a great 10 years or so and the rest of life paying for it.
ReplyDeleteI hope I'm not being too bold, but the story of the ants and the grasshopper come to mind. I just want people to avoid needles suffering and preventable hardships.
Jerry, I make a good living. I didn't lose my job in the downturn, in fact I got busier. I work hard, so I deserve to play hard. How I spend my money to have fun really shouldn't be the credit union's concern. I'll work like my dad. He's still working at 66 years old and doing fine. He has a big new house and enjoys life too. He doesn’t worry about debt the way you do, and he’s happy.
ReplyDeleteTim, it sounds like you have been very fortunate. I'm gad to hear your father has excellent health and seems to enjoy his work as well. Not everyone is that blessed. Budgets and investments are really meant to help those who may not be that fortunate enough to have a good job that they enjoy or good health into their 70's. I hope you can have both. Jerry
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