Debt, excessive expenses, and social pressures are weighing on households’ ability to prepare for the future
When it comes to setting aside money for the future or a rainy day, there’s no painting Canadians with a broad brush.
The BMO Savings Survey, conducted by Pollara Strategic Insights with an online sample of 1,000 Canadians, found that 25% did not put away any savings in 2018, while 15% saved more than $10,000. When asked how much savings they had in total, 29% of those surveyed claimed to have over $100,000.
The poll also found that most Canadians are optimistic in 2019, as 52% plan to put money aside and 31% looking to save up to $10,000. If a recent RBC poll is anything to go by, it seems such people are off to a good start. Another 12% believe they won’t be able to save anything, and 36% were unsure how much they can save.
Contributing to such doubts are barriers like stretching themselves too thin on expenses (an obstacle for 67% of Canadians), playing catch-up and paying down debt (45%), and social pressures (37%, specifically among millennial Canadians). Credit burdens inched higher unexpectedly in the third quarter of 2018, according to BMO Economics; the key debt-to-disposable income ratio reached a record-high 173.8%. The household debt service ratio, the share of disposable income consumed by interest and principal payments, jumped to 14.5%; interest payments alone took up 7.22% of income, the highest share in seven years.
But a slowdown in household credit is expected to ease debt burdens. “Household credit is now rising the least in 35 years, and with consumers expected to spend at the slowest rate in a decade in 2019 due to higher interest rates and tougher mortgage rules, the debt ratio should stabilize if not fall modestly,” said BMO Capital Markets Senior Economist Sal Guatieri. “There's no better time to tighten the fiscal purse strings than when interest rates are on the rise.”
In terms of how Canadians plan to use their savings, 47% of those who plan to make withdrawals this year said they’re eyeing a trip or vacation, while nearly 20% cited home renovations and 15% were concerned about seasonal events like holidays or birthdays.
Among those saving for the longer term, 36% have retirement on their minds; 32% of them are worried they’re not saving enough. Another 36% said they’re preparing for an emergency, though almost 40% of that cohort feel they are falling short. There’s also a sense of urgency among Canadians taking on debt, with 17% focused solely on getting back in the black.