If you were to pick a dominant theme in Canadian personal finance, you could do a lot worse than debt.
We are among the world leaders in borrowing money to buy homes and other items. We may be better at this than hockey, maple syrup production and snow shoveling.
What we’re not particularly good at is thrifting. But in a recent survey of 5,736 households, 62.7 percent of respondents chose “savings” as their dominant money personality. “I was surprised by this number,” said Eloise Duncan, founder and CEO of the Financial Resilience Institute, a nonprofit that conducted the survey. “This is a fascinating result.”
A thrifter is defined by the institute as someone who gets satisfaction from watching their money grow as a result of discipline and attention. There’s a temptation to use the word “delusional” to describe the overwhelming percentage of people who do this as money personalities, but that’s too harsh. “Inspirational” is the best choice.
People answered the question about money personality as they want to be seen, and that’s positive.
This tells us that in a country with heavy spending, some of which is discretionary and some of which is unavoidable due to the high cost of living, it is still recognized that saving is vital. Maybe we can get back there one day after inflation subsides and interest rates drop.
Money personality research allowed people to choose more than one option for their dominant trait; In this way, 38 percent choose “spender” and 22.4 percent choose “money avoider.” 9.1 percent preferred the word “watchman”, which means a person who uses money as a means of protection or control. Close to 6 percent are “risk takers” and 4.7 per hundred are “money monks.” This means you prefer not to deal with financial matters and rely on others to get things done.
Ms. Duncan’s surprise at the share of people who consider themselves savers first is based on several data points collected by the Financial Resilience Institute. For example, as of June 2023, 37 percent of the population had a negative or zero household savings rate.
“I think there are some people who like to think they’re saviors, but it doesn’t necessarily happen in action,” he said.
Inflation and high rates are a conversation-ending excuse for not saving right now. For money-strapped households, this is a win to avoid going into further debt. Saving can be turned off or temporarily put on hold.
But Canada’s openness to spending predates today’s fiscal challenges. Although the ratio of household debt to disposable income has stabilized recently, it has risen rapidly since the 1990s, most recently reaching 180.5 percent. This means there is almost $1.81 in debt for every dollar of household after-tax income.
This ratio is an abstract that brings together people with a lot of debt, people with little debt, and people with no debt at all. However, it is useful to compare today’s situation with the past and to compare Canada with other countries. From this perspective, Canada looks like a very spending country.
Our household debt levels are the highest among the G7 group of industrialized countries. The Organization for Economic Co-operation and Development says: debt-to-income ratio lower than that of eight other countries but higher than that of 27 countries, including the United States and the United Kingdom.
According to the latest Statistics Canada calculation, the savings rate in Canada is not too bad by our standards, at 5.1 per cent. The savings rate five years ago was almost zero. It rose during the pandemic and has been easing since then.
It’s problematic to preach about savings in the wake of rising borrowing costs and the cost of living, but let’s continue anyway. First, today’s high rates make this the best time in decades to save and earn risk-free interest. Second, there is a connection between having some savings and being financially resilient.
The institute reported that 69 percent of people who describe themselves as savers qualify as financially resilient or near-resilient, compared with less than 50 percent of spenders and 30 percent of money avoiders. Resilience is defined as the ability to cope with financial shocks that occur as a result of unplanned events.
The latest figures on consumer spending document a slowdown from peak levels following the easing of pandemic restrictions. This trend is driven by higher debt and living costs, not a cultural shift towards savings.
But let’s not ignore a higher savings rate. Maybe Canadians will start putting their money where their mouth is.
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