When it comes to saving patterns, it seems like Canadians are caught at two opposite ends of the spectrum. According to a recent Bank of Montreal survey, 15 percent of Canadians managed to tuck away over $10,000 last year, yet a quarter of people did not save a dime.
Why Canadians are having a hard time saving
One in ten survey takers said they don’t think they can save any money this year, which begs the question, what is preventing Canadians from reaching their savings goals? Over two-thirds of people said they are stretching themselves too thin on expenses to be able to save, and 45 percent are trying to pay down debt.
Evidently, the Canadian household debt-to-disposable income ratio crept near 173.8 percent in the third quarter of 2018 – a record-high. Canadian household credit burdens are increasing, and economists are attributing it to the rise of interest rates over the past year and a half. Since July 2017, the Bank of Canada has more than doubled its key overnight lending rate, from 0.50 to 1.75 percent.
The household debt service ratio (interest and principal as a share of disposable income) has also jumped to 14.5 per cent, with 7.22 per cent of income being put toward interest payments – the most in seven years.
And though the Bank cites good economic performance as the reason for increasing rates, it recently held rates at its last announcement in early March, and hinted rates may remain longer than expected.
BMO Economics also reports debt burdens are alleviating, with household credit slowing.
“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,” noted Sal Guatieri, Senior Economist, BMO Capital Markets.
On a positive note, 29 percent of Canadians reported having over $100,000 already saved, and over half of those surveyed say they definitely plan to put savings aside this year. Three in 10 disclosed that they aim to save up to $10,000.
For those looking to boost their savings this year with a good interest rate, RateSupermarket.ca offers options for both short- and long-term goals. Compare rates for TFSAs, RRSPs and GICs and find the best product suited to your lifestyle and needs.