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(September 11, 2008) Canada’s dwindling savings rate will get a boost with the introduction of the Tax-Free Savings Account (TFSA) in January 2009, a report from CIBC World Markets confidently proclaimed today.

The new accounts could provide the impetus for Canadians to save up to $115 billion by 2013, with a cumulative tax saving of almost $2 billion, according to senior economist Benjamin Tal. The first year alone could see up to $20 billion invested in TFSAs.

“The TFSA will kick in exactly when many Canadians are making the transition from passive savers to active savers,” Tal says.

The savings rate has been drifting lower over the past 20 years, as interest rates have fallen off of the recessionary highs seen in the 1980s. Over the same period, overall income growth has slowed as well, while rising home prices have left consumers with little capacity — or incentive — to save. That trend may be about to change, however.

“The levelling off in house prices is stripping households of one of their most important means of savings,” says Tal. “Just when Canadians are ready to go back to old-fashioned savings behaviour, the introduction of the TFSA will provide them with an additional tool to raise their active savings.”

After studying similar accounts in the U.K., Tal concludes that more than 40% of Canadians are likely to use new money in contributing to the TFSA, rather than reducing their RRSP contributions.

Since the 1999 launch of the plan in Britain in 1999, uptake among consumers reached 37% of the population by 2008.

Tal predicts that about 400,000 lower-income Canadians will start to stash money away in the TFSA, diverting it from any RRSP contributions, as the TFSA will not trigger any clawback of future benefits, like Old Age Security payments.

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Poll supports federal caregiver program

(September 11, 2008) While critical illness insurance continues to be a tough sell in Canada, it remains something of a stop-gap measure even when it is in place. Gravely ill clients are usually not the only members of their family to miss work when they are sick, and a survey by the Canadian Cancer Society says 50% of Canadians are concerned about the financial impact of caring for a loved one.

More than 60% of Canadians believe it is likely that they, or their spouse or partner, will be a caregiver to a sick family member in the future.

The poll also found there is strong support for federal assistance in times of critical illness, with 59% of respondents saying they would vote for a political party that promises a longer period of support for Canadians who have to be absent from work to care for a gravely ill family member.

Half said it would be fair for a program to provide up to six months paid leave to care for a sick relative.

“The Canadian population is aging, and increasingly Canadians will be caring for loved ones who have cancer and other serious illnesses that could lead to death,” says Dan Demers, director, public issues, Canadian Cancer Society. “While some financial support currently exists for caregivers, much more needs to be done to assist these people, who are the invisible backbone of our health-care system.”

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U.S. sentiment improving

(September 11, 2008) American consumer sentiment continued to improve for a second consecutive month, according to the September reading of the RBC CASH (Consumer Attitudes and Spending by Household) Index.

Overall consumer confidence climbed 35 points to 69.2. Optimism abounded in the latest survey, with the index measuring future expectations gaining 81 points.

“The dramatic rebound in consumer sentiment this month is as startling as some of the developments in recent weeks,” said T.J. Marta, economic and fixed income strategist for RBC Capital Markets. “The prices of oil and gasoline are down 30% and 12%, respectively, from their peaks in July.”

The latest survey also came on the heels of the Fannie Mae and Freddie Mac bailouts, as well as the two political conventions, which whipped up expectations of change.

(09/11/08)