Canadians not saving enough, survey confirms

(October 21, 2004) Only 42% of Canadians have stashed away “rainy day” money and three-quarters say they would have enough cash to last only three months if they were without a regular source of income, according to a study released today by Scotiabank.

“The good news is that Canadians are saving more than Americans,” says author David Bach, who was hired by Scotiabank to analyze the results of the Ipsos-Reid poll. “The bad news is that it’s still not enough.”

Bach says the key to preparing financially for the unexpected is what he calls the “latte factor” — the small items Canadians purchase every day, such as coffee, cigarettes and bottled water.

Foregoing these small items could mean saving about five dollars a day. While 73% of the survey respondents felt such a saving would make little or no difference to their financial well-being, Bach disagrees.

“Five dollars a day saved automatically can change your life and lead to enormous savings over time,” he insists, using the example of five dollars a day invested conservatively in a registered plan with an annual rate of return of 7.5%. That would generate $23,000 after 10 years and $72,000 over 20 years, Bach says.

The survey found that while nearly 70% of Canadians said they would feel better about their lives if they set up a rainy day fund, only one in five have followed through by setting up an automatic withdrawal plan at a bank or a payroll deduction plan through work.

According to Statistics Canada, consumer spending grew steadily in 2003, particularly in the area of housing, at the expense of personal savings.

The personal savings rate in Canada declined from 4.7% to a record low of 2% last year, StatsCan said, with consumers borrowing a record $50 billion, hitting $30 billion in mortgages alone.

Ipsos-Reid polled more than 2,500 Canadians in an online survey conducted last month. The results are considered accurate within two percentage points, 19 times out of 20.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com