One in four Canadians puts nothing aside at the end of the month in case of financial emergencies.
That’s one observation on the country’s collective saving habits, found in fresh survey results published Wednesday by Bank of Montreal. It’s a potentially troubling finding as Canadians’ debt loads continue to climb.
On a more reassuring note, the survey data suggests the average savings rate is trending higher compared to recent years, and is now comfortably above 5 per cent of monthly income, a level more in line with historical norms.
“We are saving a little more money then we have been,” said Sal Guatieri, a senior economist at the bank.
On average, households saved 5.1 per cent of their after-tax income in the second quarter, down from 5.5 per cent at the beginning of the year. That’s still higher than rates seen between 2010 and 2012 as consumers spent freely, encouraged by low interest rates and rising values on assets such as their homes.
Debt as a percentage of income—which hit a record high late last year of $1.65 of credit owed for every $1 earned by a Canadian household—has also been in decline, according to Statistics Canada.
The federal agency will release numbers from the latest quarter later this month, which will be closely watched to see if the trend continues.
But while many have seemingly got the message from the Bank of Canada and the federal government urging households to check their debts, it’s fallen on deaf ears for some – either because they aren’t willing to curtail spending, or are stretched as it is to make ends meet.
Twenty-three per cent of respondents to the Pollara survey commissioned by BMO said they “are living paycheque to paycheque,” with their accounts completely drained once bills are paid.
The survey follows another released by the Certified General Accountants Association of Canada in late May that put the number of non-savers at almost a third.
One potential impediment to saving? Debt servicing on credit-cards, lines of credits, auto loans and other obligations.
BMO’s Guatieri compared Canadian households to their U.S. counterparts, which racked up huge personal debts in the pre-recession years – to a much greater degree than Canadians have, he says – and spent the subsequent five “repairing their balance sheets” by paying down debts.
Since 2008, U.S. households have “deleveraged” or wiped away about $1-trillion in debt.
“Canadians are in this kind of ‘deleveraging lite’ mode,” Guatieri said.
For some, that’s putting an additional strain on the available cash on hand to fund financial bumps in the road, according to the survey.
Almost one in five said they couldn’t access more than $1,000 in saved cash in the event of an emergency, like a car or furnace repair. That figure is up from 13 per in the same BMO survey a year ago.
Still, BMO expects the saving rate will continue to plug along above 5.0 per cent for the next year or so, while Guatieri argues credit growth will slow to become more in line with income gains.
As it stands, Canadians’ income is pegged to rise 3.3 per cent this year, a weaker rate than economists would like to see, while household credit growth stands at 4 per cent– meaning debts continue to rise faster than consumers can pay them off.