Home is Where the Money Is
Canadians spending virtually all of their income.
Ottawa - Canadians now spend virtually all of their disposable incomes but the decline in the national savings rate to zero from more than 20 per cent two decades ago is not as worrisome as it sounds because their savings are in their homes, a major bank says.
The bellweather national savings rate - spending as share of disposable income - plunged to a 22-year low of zero in 2004 from a peak of 20 per cent in 1982, Scotia Economics notes in a report yesterday.
Concerns have been expressed Canadians are not saving enough to cushion them against unexpected financial shocks, such as the loss of a job, the report notes. Those concerns have been heightened by increases in household debt levels.
However, the home is where the savings are, it says, noting Canadians have been putting more of their money into real estate rather than into their savings accounts or other financial investments.
“During a prolonged period of pintsized returns in financial markets, Canadians have been taking advantage of generational low interest rates and rising home values to invest more in real estate,” says Scotia Economics economist Aron Ganpel. “This development is particularly relevant to the issue of saving, since real estate investments, home buying as well as renovations, are not included in the conventional methodology for determining the national savings rate.”
A lot of other financial assets are also excluded from the savings rate, including capital gains on investments in both real estate and financial assets, contributions to social insurance and employee pension plans, and savings deducted directly from pay checks.
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