Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The common-sense Canadian is back.

We're borrowing less voraciously and saving more aggressively. In fact, our personal savings rate is now twice that of the U.S., and about six times higher than it was almost a decade ago. "All the talk about the Canadian household being tapped out or out of shape is a bit overdone," said Doug Porter, chief economist at BMO Nesbitt Burns.

Americans used to be kings of consumption, but we usurped them a few years ago as their economy sagged and ours merely wobbled. Manic borrowing by Canadians ensued, along with indifferent levels of savings. Now, at a time when there's concern about a housing-market correction and slow economic growth, we have a positive story to add to the mix in the form of more responsible borrowing and saving.

Story continues below advertisement

The declining trend in the growth rate for household debt has been apparent for months now. What's new is the positive data on the savings rate, which hit a ridiculous low of 0.9 per cent back in the first quarter of 2005.

Statistics Canada pegged the household savings rate for the first quarter of 2013 at 5.5 per cent, which compares to 5.4 per cent in the final three months of 2012. The rise in the savings rate is actually more impressive than it first appears, though. When it first announced numbers for the fourth quarter of last year, Statscan pegged the savings rate at 3.8 per cent.

Revised numbers aren't unusual in reporting economic data. What's different here is the magnitude of the improvement in savings. "The savings rate is still probably lower than would be ideal, but it's hardly the low rates that we've occasionally seen," Mr. Porter said.

The savings situation looks more encouraging still when we consider the amount of money that people have been pouring into their mortgages to pay down outstanding balances. A recent report from the Canadian Association of Accredited Mortgage Professionals estimates that close to one million mortgage holders made lump-sum payments last year, totalling $10-billion.

Also, nearly 1.1 million people voluntarily bumped up their regular mortgage payments last year, with the amount of the average increase pegged at $300. Mr. Porter said all these mortgage numbers are "confirmation that there are some positive things going on here, some subtle ways that we are seeing people save."

The latest numbers on borrowing are also favourable, even though survey results issued Wednesday by Canadian Imperial Bank of Commerce suggest that nearly half of indebted people haven't made a dent in what they owe in the past year. More encouraging is a new report from credit bureau TransUnion showing a drop in the average level of personal non-mortgage debt from the fourth quarter of last year through the first three months of 2013. The 2-per-cent quarterly decline to $26,935 is the largest since TransUnion began tracking this data back in 2004, and a sign that people are easing up in their borrowing through loans, credit cards and lines of credit.

The debt-to-income ratio is the most-often-cited measure of household debt levels, and the most recent numbers were ugly. Statistics Canada's most recent data put the ratio of household debt to disposable income at 165 per cent, which is comparable to the peak reached in the United States in 2007, just before the housing bubble exploded. Worse, our debt-to-income ratio has been rising steadily for years without pause.

Story continues below advertisement

But even here, there's some reason for optimism about the personal finances of the nation. With disposable incomes rising in the latest quarter, Mr. Porter suggests it's possible we could see the debt-to-income ratio stabilize or even decline a bit.

Some background on the savings rate: It's based on personal income left over after all usual expenses and consumption, and not specifically on money flowing into bank and investment accounts. If we focus just on financial assets, such as bank deposits, mutual funds, stocks, pension assets and life insurance, we get a total of $4.7-trillion. The total debt figure is much lower than that, at $1.7-trillion.

A more commonsensical balance of borrowing and saving isn't great for the economy, given its reliance on consumer spending. Still, we all benefit. There's less pressure on the Bank of Canada to use interest rates correctively against excessive borrowing, and less froth in the housing market. Households are better able to withstand any future financial setbacks, and save for retirement and for their children to attend college or university.

The usual personal finance column suggests you do more of one thing or less of another. The message here is simply to keep up the good work.

-------------

Five ways to save more and get out of debt faster

Story continues below advertisement

1. Set up an automatic transfer of money into a high-interest savings account every time you get paid.

2. Ask your lender if you can increase your mortgage payments by 10 per cent.

3. Increase your regular contributions to registered retirement and registered education savings plans by at least the same amount as your pay increases this year.

4. Strive to have any outstanding balance on your line of credit paid down to zero in the next 18 months at most.

5. Track your monthly household spending and aim to cut down on your biggest non-essential expenses.

For more personal finance coverage, follow Rob Carrick on Twitter (@rcarrick) and Facebook (robcarrickfinance).

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies