Canada a nation of savers

(January 13, 2005) Sometimes stereotypes exist for a reason. Canadians are typically seen as somewhat boring, though we would argue we’re cautious and thoughtful. Recent surveys on investment attitudes tend to back that up.

“Three words define Canadians’ approach to their investments: control, conservatism and confidence,” says Allan Smith, COO of Saxon Funds Management Limited. “They’re becoming more involved, and being more careful with their money — and perhaps that’s why they’re cautiously confident as we head into RRSP season.”

Using Aesop’s fable of the ant and the grasshopper, a survey conducted for Saxon, found 72% of Canadians identified with the industrious ant, saving up for their future. Only 25% of respondents admitted to a more carefree attitude of “living for today.”

This finding is backed up by another survey released today from Scotia Economics. In a report entitled “Saving is Not Out of Fashion,” Scotia says Canadians have been saving more than statistics indicate, diversifying their assets by investing more in real estate than in financial assets.

“While many Canadians perceive the equity in their home as savings, statisticians consider this a form of consumption,” says Aron Gampel, deputy chief economist, Scotia Economics. “Capital gains, both realized and unrealized, accruing from investments in both real estate and financial assets are also not counted.”

The official savings rate has plummeted from 20% in 1982 to a new all-time low of zero in the summer of 2004. Gampel says there are other forms of savings that are also discounted from the official data, giving an inaccurate picture of Canadians as spendthrifts.

“The conventional savings rate also excludes contributions of Canadians to social insurance and employee pension plans, which are non-discretionary savings deducted directly from paycheques,” says Gampel. “Simply adding back these deductions would lift the measured savings rate above 8%.”

Household balance sheets indicate real estate investments have so far proven to be sound, as home values and home-ownership rates have continued to climb, thanks to accommodative interest rates. The collective net worth of households is now almost six times the annual personal disposable income in 2004.

“Canadians are not in the dire financial straits suggested by the precipitous drop in savings out of current income,” says Adrienne Warren, senior economist at Scotia. “Real estate assets accounted for 35% of total household assets in the third quarter of 2004, up from 29% four years earlier. Non-pension financial asset holdings, on the other hand, have dropped from 41% to 37% of total assets, while pensions continue to hover just above 20%.”

Canadians bullish … kind of

As far as their investment outlook, however, the Saxon survey found both “ants” and “grasshoppers” appear cautiously optimistic about the markets. A bullish sentiment was expressed by 53% of the total survey sample, with 43% saying they were market bears. Both bulls and bears tempered their opinion, though, with only 4% in each group saying they felt strongly about their position.

Respondents also claimed they were getting more involved in managing their investments, with 61% saying they were taking charge. Various reasons were given for getting more involved, ranging from a desire for more control (17%), the fact they were getting older (10%) and increasing awareness of the markets (28%). Increased awareness was cited even more by younger respondents, at 37%.

But despite this professed awareness, the Saxon survey found only 41% of those surveyed said they were aware of the recent controversies in the mutual fund industry, and only half of that number had any sense of the details.

Two-thirds said they believed “any problems in the mutual funds industry will be resolved.” Three-quarters expressed confidence in the industry and said most fund companies are reliable and trustworthy.

That seems to contradict another finding from the survey, which indicated that 45% were less likely to invest in mutual funds this year, due to the current state of the industry.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com