Why Aren’t We Saving Anymore?

It was only a few short decades ago that Canadians were savers. In fact, in the mid-80s our personal savings rate reached its high of just over 22%. Since then it has been on a slow decline, as June 2011 per Statistics Canada our savings rate has decreased to 4.1%. That is a decrease of 0.3% since March 31st and 2.7% in only twelve months. What has happened to our savings habits?

The first clue is to look at the past. Those individuals who lived through The Great Depression of the 1930s and 40s became savers. This is the generation who saved their money before they purchased anything and were loathe to buy anything on credit. The old adage “if it is worth having, it is worth saving for” came from this generation. Over time household wealth increased and by the 90s Canadian household wealth was on the increase as a result of the significant gains in the real estate and stock market. With the increase in personal wealth came a change in behaviour as we started to believe the good times were here to stay and we “felt” less of a need to save.

At the same time interest rates dropped to historic lows, meaning the investment rate individuals earned on savings declined as well, which discouraged savings. But falling interest rates also meant lower costs of borrowing. This combined with a real increase in household wealth resulted in a relaxation in credit. New ways to borrow, an over-abundance of easy credit, mortgagees with little or no down payment requirements, home equity lines of credit and the securitization of debt meant Canadians were able to borrow more easily for virtually anything. With easy, plentiful credit our savings habits turned into spending habits and we were no longer OK with waiting to buy the newest of the new, we wanted it now. More than that, we deserved it now.

What can you do to reverse the trend?

Building a new habit is difficult but if you can stick to it the pay-off can be substantial on many levels. Not only will you have savings set aside for a rainy day, a much anticipated vacation, retirement or just as a safety net you will also have a sense of financial well-being and accomplishment. Here are a few ways to get your savings started:

1. Take advantage of any type of saving program offered by your employer: Whether it is a payroll savings plan, a matching program or any other vehicle your employer has in place to increase your savings – take it. If it comes off your cheque before it gets deposited into your account you are less likely to ‘notice it’ and sooner than later you will have a decent sum set aside. It’s a fantastic way to save less painfully.

2. Pay yourself first: You already know this one but before you pay anyone take a percentage of your pay and place it in savings. Figure out what your annual savings goal is by taking our Financial Strength test. To take your Financial Strength test, go to mycreditunion.ca and click on the Get Financially Fit icon. Typically the amount suggested is 10%. In fact start treating the amount you need to save monthly as a bill. Make your savings automatic. Set up a preauthorized transfer from your chequing account to your savings account to pay yourself first. Once you reach specific levels of saving, arrange to have the money transferred into another savings vehicle that earns you more income.

3. Getting a raise? Before you start getting used to your new pay cheque increase your savings and what you are paying on your debt. Make annual goals for reducing credit card and other debt balances.

4. Finally, take any kind of financial windfall and put it towards your emergency and savings funds. No windfall in sight? It may seem silly but start collecting all the loose change around the house – you will be surprised how quickly it adds up.