When reading my commentary yesterday on how the recent U.S. consumer confidence report is nothing but a cruel joke to debt- laden Americans, I’d bet that many of our Canadian readers were feeling pretty good about themselves.
To many Canadians, the grass is always greener on this side. Canadians just don’t have the economic problems that Americans has, they think. Or do they?
Truth be known, Canadian consumers are actually in a worse place than their U.S. counterparts.
On Tuesday of this week, Statistics Canada reported that Canadians’ rate of savings just set a new 44-year record… to the downside!
That’s right, Canadian individuals are saving less today than they ever have before. In fact, they’re not saving at all. The Personal Savings Rate in our “true north country” fell to -0.6% in the first quarter. So, what does this mean?
It means Canadians across the country are getting into the very bad habit of spending more than they make.
Bank of Nova Scotia Economist Benjamin Tal said, “Some of the consumption we are seeing is really based on income that doesn’t exist… [recent consumption] was not from money that people have been making, but money people have been borrowing.”
Once again, cheap credit is to blame. When you’ve become accustomed to a certain standard of living, and you’re not seeing your income increase in line with the rate of inflation, what foots the bill? Credit!
The last time Canadians saved so little was the Great Depression. This is a sad state of affairs, indeed.
I can guess what you’re thinking… but incomes are slightly up, employment is up, house prices are up… Canadians can afford to shop…
Let me make it crystal clear:
–The rising equity you have in your home doesn’t mean more money in your pocket until you sell your house.
–The average Canadian income may be up, but it’s not up as much as the rate of inflation, so you’re actually making less money on a day-to-day basis than you used to be.
–Canadians are taking on more debt, but not paying any more off (the ratio of disposable income to interest payments remains at a low of 7.6% in Canada).
–Last, but perhaps most startling, Canadians’ savings are dwindling to fuel the recent shopping sprees we’ve seen in home furnishings and clothing. Just try to cash in that sofa or sweater set for cash six months from now, and you’ll see why this is a major problem for our future.
Maybe that old saying is correct, after all: The grass really is greener on the other side. That seems to be the reality these days, anyway–especially if you’re Canadian.