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July 22nd, 2008 at 3:29 pm
You still can’t get away from the change in savings rate in BC compared to other provinces in the past decade. It’s not like BCers are masters at investing in equity markets compared to other provinces. Something else, maybe…
July 22nd, 2008 at 3:22 pm
I posted what an 8% negative savings rate looks like over time on my blog.
July 22nd, 2008 at 3:18 pm
“savings rate is incomplete because it excludes the value of investments in the stock market or capital gains”
weird. maybe that explains the savings rate a little, because a lot of the eager savers I know have been advised to put all their savings into mutual funds. aggressive mutual funds, since the younger you are the more risk you can take on – according to most mutual funds salespeople.
July 22nd, 2008 at 3:14 pm
Oh and investments also count as savings.
No they don’t. Understand I think that investments are savings and should be included but that doesn’t change how the government calculates the “savings rate”.
http://findarticles.com/p/arti....._n15716591
The important quote:
“savings rate is incomplete because it excludes the value of investments in the stock market or capital gains”
July 22nd, 2008 at 3:07 pm
Anon36: I can’t find a good definition of personal savings rate but found this article on statscan and some definitions here. I don’t see any indication RRSPs are included in PCE. Here is a discussion on BC’s savings rate. BC should have a lower savings rate because there are more retirees per capita and possibly a propensity for other indirect sources of income (read: offshore money or black market).
The -8% savings rate stat is the average. I find it hard to believe that roughly 15% of the population that is retired can bring down PSR that far. I also am suspicious at how many British Columbians truly have that many assets offshore that are transferred into the province for spending (why not buy stuff at a fraction of the price in Asia?). All indications are that the vast majority of people living in BC also work in BC and are not of the jetsetting ilk. We keep getting impressions that BC is filled with retirees, rich immigrants, and gangsters where I think while there is some impact on PSR it seems far-fetched to think there’s enough of these types to move the dial to -8% on average.
The most logical conclusion is the -8% is an indicator of a high level of wealth that is being tapped to supplement spending habits, the most likely source being real estate.
July 22nd, 2008 at 2:37 pm
Elizabeth Warren did a study on bankruptcies in America. Her findings were that people do not spend more on fun/unnecessary stuff than they did in they did 30 years ago. People spend more on electronic gadgets now, but they used to spend more on dry cleaning and consumer durables. People spend less, inflation-adjusted on clothing now than the did in 60s, partly because clothing is so much cheaper to make.
People are mainly in debt now due to high mortgages & student loans. My parents didn’t graduate with $40,000 on debt and they had options for a decent job out of high school. Spending power has been decreasing for a long time, and families need 2 incomes when they used to need one.
Keep the scolding for flippers and leave the single moms alone. Tanta at Calculated Risk does a better job of this than I will anyway:
http://calculatedrisk.blogspot.....cleod.html
As for keeping the government out of this…well, those pesky usury laws did a nice job of protecting people from themselves until they were repealed in the 80s (in the States, leading the way for the rest of the world). Some government intervention is necessary in a civilized society l. For example, I am in favour of fire departments, even though they also protect stupid people who smoke in bed. You don’t want any laws restricting usury? Then I don’t see why you’re complaining about an asset bubble in the first place.
PS – I am debt free, a renter, not living at home and not a single mom.
July 22nd, 2008 at 2:37 pm
They’ve been told they’re extra-special, ultra-smart, and cannot fail. So they all expect their careers to be on the fast track to super wealth…why not borrow as much as you want now? When you become CEO, paying off those debts will be dirt simple!
True. Another reason people in North America spend like drunken sailors is because they’ve been coddled by experiencing primarily a boom market for 60 years.
July 22nd, 2008 at 2:32 pm
“I’m not sure where that mentality comes from. I’m open to suggestions.”
Various sources, but at the heart of it all is marteting.
I’m no conspiracy nut, but it’s a fact that there are people hard at work in marketing firms and universities who are utilizing all the market and psychological research they can get in order to better part fools from their money.
Aside from pushing particular products (traditional advertising), marketers realized years ago that they could boost sales in general by convincing people that their good feelings derived from buying things are actually far more valuable than the money paid to buy them. “You’re worth it” is their rallying cry.
The cultural changes we see re. consumption are various, with differing immediate causes, but none of them happened by accident.
July 22nd, 2008 at 2:31 pm
Oh and investments also count as savings. Buying a house that is assessed at $500,000 with a $500,000 mortgage is neutral for savings.
July 22nd, 2008 at 2:29 pm
Drachen/Aleks: to those interested in my financial situation, after getting out of school I rented for a while with friends, then got married and bought a townhouse in a good neighbourhood. Mortage? Not a problem, we were able to save more than the payments every month ($20K/yr savings, and my salary was considerably lower then, too).
The market got bubbly, so we sold.
A parent was in poor health in a nearly-empty SFH, so we moved in as caretakers, and his health has improved considerably. We pay our fair share of utilities, taxes, and food. The rent for a comparable SFH is less than our mortgage payments used to be, so there’s no big subsidy going on there. It’s not like we’re living in a luxury condo or anything.
July 22nd, 2008 at 2:29 pm
Anonymous
Wrong wrong wrong.
“Income 1000″
Fine
“”RRSP 200 (not savings)”
Wrong, it is savings.
“Mortgage 250 (paying off your mortgage doesn’t count as savings either)”
Wrong again, paying down a mortgage IS savings. Only the interest payment is not.
Credit Card Payment 50 (Also doesn’t count nor should it)”
Wrong again, except for interest payments.
“Food 300
Rent 280″
“= 1080 Spent and 1000 dollars taken in =-8%”
Hard to say what the interest payments would be in this example but it’s certain that the savings in your example would be positive.
Here is a simple definition for you. “income that is not consumed by immediately buying goods and services is saved.” (wikipedia)
July 22nd, 2008 at 2:13 pm
The average American FICO score is 680. The average Canadian FICO score is 750. Does this mean we’re more responsible with debt, and more apt to live within our means?
July 22nd, 2008 at 1:59 pm
I don’t understand parents who let their kids live at home when they’re out of school and earning decent money. I’ve known a couple and they were able to save up large down payments to go straight from living at home to buying a condo. Which is great for them, but seems like an awful lot of coddling by the parents.
If you’re living at home and “saving” $50,000 a year, probably half of that is actually money your parents are giving you as subsidies. And in fact, if you aren’t paying for room and board you really have no expenses at all, so what ends are you making meet, exactly? When I lived at home I was able to stay out of debt only earning a couple hundred bucks a month from a paper route. Obviously if single moms can’t get by it’s their own fault.
July 22nd, 2008 at 1:59 pm
I have a hard time understanding what a -8% savings rate really looks like on a balance sheet.
A simple sample
Income 1000
RRSP 200 (not savings)
Mortgage 250 (paying off your mortgage doesn’t count as savings either)
Credit Card Payment 50 (Also doesn’t count nor should it)
Food 300
Rent 280
= 1080 Spent and 1000 dollars taken in =-8%
The thing to remember is that savings rate doesn’t mean what people think it means. Only money put into a savings account qualifies. Since most banks pay you almost 0% interest only idiots have a high savings rate. The rest of us invest, pay off mortgages, ect.
July 22nd, 2008 at 1:50 pm
millions of Americans — young and old, native and immigrant, affluent and poor
Just to point out that if your debts are greater than your assets you are poor.
July 22nd, 2008 at 1:48 pm
Single parents can make ends meet; It’s a tough life but you can buy used, rent cheap accommodations, and be selective about what foods you buy. If anyone is “entitled” to more it would be people like this but they get very little and still survive, many without taking on debt. It’s not fair to criticize someone for not “understanding” what it takes to survive on little income. We can all do the math. I agree with many here that taking out debt is not absolutely necessary, even for low income earners. Don’t expect to eat out every night though.
July 22nd, 2008 at 1:33 pm
M
I presume along with being rent free you are probably utility free and child free too. If that’s the case then you don’t really understand anything about normal married people.
Did your parents buy your car too? What else do they provide for you? I bet you eat for free pretty regularly too.
What’s left to spend money on?
What’s really surprising about your comment is that you seem to think you should be able to understand normal people.
July 22nd, 2008 at 1:11 pm
Isn’t it obvious. The first wave of children coming out of school where educators must be “sensitive to a child’s self-esteem issues” above all other concerns has created a generation of coddled little consumer-drones. They’ve been told they’re extra-special, ultra-smart, and cannot fail. So they all expect their careers to be on the fast track to super wealth…why not borrow as much as you want now? When you become CEO, paying off those debts will be dirt simple!
In the meantime, they can all GET OFF MY LAWN!
July 22nd, 2008 at 1:10 pm
People look around and see others spending lavishly, driving new cars, eating out at expensive restaurants, sending their kids to ballet lessons and hockey camps. And they think that if (seemingly) everyone else can afford it, then they can too. But they don’t see the vehicle leases, credit card debts, payday loans or lines of credit, not to mention the stress and arguments, and the bankruptcies. If all of that was out in the open, people likely wouldn’t feel quite so compelled to keep up with the Joneses.
July 22nd, 2008 at 1:04 pm
Speaking of debt. US doubles national debt in a matter of days.
July 22nd, 2008 at 1:02 pm
OT
I wonder if this PR will solidify our standing as the best place on earth?
http://news.bbc.co.uk/2/hi/americas/7519178.stm
…Misha Glenny visits British Columbia in Canada where homegrown marijuana has become big business.
Mebbe this can be spun to help out the tourist industry…
Olympics? Ross Rebagliati?
Proposed license plate motto “It’s always 4:20 here”
July 22nd, 2008 at 1:01 pm
Free rent, huh? I don’t suppose it’s the norm here…
If you mean you are rent-free because of a paid off home, than all the power to you.
If you mean you are rent-free as a favor received from others/family, well then we can’t compare apples to oranges, can we?
July 22nd, 2008 at 12:38 pm
For what it’s worth, I’m an engineer, under 30. My wife (who earns half my income) and I are able to save $50K per year from our salaries, plus investment income from our savings. It goes without saying that we have zero debt.
Admittedly, our rent is cheap (free), and we live frugally, but that $50K/year can pay for a heck of a lot of “things”. I’ve never understood how people with good incomes are able to blow all their money.
July 22nd, 2008 at 12:35 pm
“I’m not sure where that mentality comes from. I’m open to suggestions.”
Many see their parents in debt and think that’s just how things work, others live for the day and know the consequences, and I’m sure peer pressure leads many to borrow too much. I agree with you the government needs a hand because they invariably pick up the pieces of people with too much debt. Laissez faire is fine as long as you’re willing to also be laissez faire with the personal tragedies that invariably result.
July 22nd, 2008 at 12:26 pm
“Some people believe they DESERVE everything in life, and believe that they can just take on additional debt to get it if they don’t have the cash right now.”
There is nothing wrong with borrowing to spend today and paying later if there is a perceived benefit and the borrower realises the debt must be repaid. Borrowing money is not free but sometimes cash today is better than cash tomorrow, which is why mortgages are so common.
People may not “deserve” a fancy existence but maybe they think they do because they are smart and will eventually earn lots of money. Who am I to say?
July 22nd, 2008 at 12:19 pm
I also think that it should not be difficult to make ends meet given current salaries. When should it be tough? When you spend too much on crap. Honestly, I spend little enough that I could easily get by on an engineer’s salary and have a lot of excess income, and I think that I’m actually fairly wasteful. I definitley spend more than most people require on clothing because of my requirements for work, and I eat out more often than I need to.
Why do people have a cashflow problem then at that level of income? They drive expensive cars, whereas I walk to work. They live in expensive places or own in an overpriced market, whereas I’m happy to rent something reasonable. They go on lavish trips and go out to expensive events, whereas I’m happy just playing squash and hanging out with friends. We were having this discussion in the office just now, and what others were saying is that there is a mentality of entitlement. Some people believe they DESERVE everything in life, and believe that they can just take on additional debt to get it if they don’t have the cash right now.
I’m not sure where that mentality comes from. I’m open to suggestions.
July 22nd, 2008 at 11:59 am
“I can’t really think of a better solution though that does not involve government intervening in people’s lives and overseeing their personal financial decisions.”
You can always try Islam.
“If you have a regular job, pay your taxes and obey the law you will have a hard time making ends meet without getting into MAJOR debt.”
BS. Many people have no debt and go on to live normal happy lives, unless “happy” means owning property in an affluent neighbornood on an engineer’s sh!t salary. Debt is often taken out with the expectation of an increase in future earnings to repay it but doesn’t always work out that way for everyone.
I have a hard time understanding what a -8% savings rate really looks like on a balance sheet.
July 22nd, 2008 at 11:39 am
If you have a regular job, pay your taxes and obey the law you will have a hard time making ends meet without getting into MAJOR debt.
So how come we had a positive savings rate back in the 90′s with higher taxes, as I said above?
July 22nd, 2008 at 11:02 am
I used the full interactive calculator and after adjusting the age and income it only shows 5% of families similiar to mine who had no debt at all. That’s one in 20, not in four… Sounds more realistic to me.
July 22nd, 2008 at 11:00 am
You can also search craigslist for keywords like ‘desperate’, ‘must sell’ and ‘leaving country’ to find good local vulturing oppourtunites.
July 22nd, 2008 at 10:59 am
They’re still asking for what they think they “deserve”. The time to buy will be when they’re saying, “Please, for the love of God just give me some money, any money.”
You don’t have to bother waiting for that here when you can just go down south and find plenty of people begging for anything for their truck or boat. The exchange rate is good and importing US vehicles into Canada is not that tricky. The extra cost often ends up being just a few hundred dollars, which is pretty good considering you can save several thousand dollars off comparable local deals.
July 22nd, 2008 at 10:56 am
I agree with 16/Anon – purely anecdotal, but it seems like most people I know are in either one camp or the other: zero debt, or up to their eyeballs.
July 22nd, 2008 at 10:56 am
You can mandate education, but you can’t mandate intelligence.
July 22nd, 2008 at 10:53 am
Interesting distribution in that data. I put in our situation – zero debt (not “almost” zero – really zero, none, nada, zilch) – and discovered that we aren’t so rare. According that data a full 1 in 4 people have no debt whatsoever.
That’s pretty impressive. And scarily bipolar.
July 22nd, 2008 at 10:48 am
Debt, debt, debt….they say since the introduction of rampant credit in our society, people no longer have to visit the food bank to make ends meet. Just rack up the old credit card to feed your children! Plus go on a few vacations, go buy that SUV you’ve always wanted and tada! You’re living the typical middle class lifestyle! Too bad it’s all about to come crashing down.
July 22nd, 2008 at 10:48 am
Our negative savings rate is shocking.
My only problem with the article linked is that it blames lenders for the over-spending of consumers. Consumers are responsible for their over-spending. Lenders are responsible for making bad loans, but they are responsible to their shareholders for that, not to consumers. Consumers have to be responsible for their own purchasing practices. Lenders are only responsible to shareholders.
Now, to the extent that we have a serious problem with people over-spending and not understanding the concept of earning power vs debt, perhaps there should be something done. People should have the right to over-spend and ruin their lives if they want. Lenders should also have the right to make poor lending decisions if they want, although I think we will see this cut back significantly; it’s called a credit bubble because at some point it pops and people’s lending habits change. So with my laissez-faire view of things, what can the government really do to prevent this from occurring, given that when it occurs negative externalities are generated. The only other thing I can think of is mandatory financial education, specifically into how debt works, how real estate works, and how budgeting works.
I’m not sure that would necessarily help in the end. I can’t really think of a better solution though that does not involve government intervening in people’s lives and overseeing their personal financial decisions.
July 22nd, 2008 at 10:33 am
Of course the engineers make shit salary. Just like most of the people around here. If you have a regular job, pay your taxes and obey the law you will have a hard time making ends meet without getting into MAJOR debt. I thought this was obvious to everyone…
July 22nd, 2008 at 10:22 am
“I’m already seeing the boats and trucks with “for sale” signs, so you shouldn’t have long to wait… ”
They’re still asking for what they think they “deserve”. The time to buy will be when they’re saying, “Please, for the love of God just give me some money, any money.”
July 22nd, 2008 at 10:09 am
someone in the previous thread suggested an SUV as an investment…. umm don’t think so
next thing someone is going to suggest building something to live in and being able to sell it for more than they paid for it…. too funny!
July 22nd, 2008 at 10:05 am
I’m already seeing the boats and trucks with “for sale” signs, so you shouldn’t have long to wait…
July 22nd, 2008 at 10:01 am
The truly astounding thing is the level of debt that the average construction joe has. Most of these guys spend like there’s no tomorrow. These are the guys who barely made it through high school and have partied through most of their lives. They’re driving brand new 50,000 trucks, have boats and other toys and have basically squandered this construction boom on nothingness.
The good news is I want a nice crew cab truck for doing home maintenance and towing an RV on the weekends with the family and when the bust happens there’s going to be some good deals. I’d like a boat as well. I’ve got the cash just waiting (well not enough for the boat and the RV just yet but the truck for sure).
July 22nd, 2008 at 9:54 am
That may be a meme (that we Canucks are more financially conservative than our Yankee brethren south of the border) but it’s not true.
Yes it is true. Canada’s savings rate in 1Q2008 was 2.8%, nothing to get excited about but better than the US.
http://www40.statcan.ca/l01/cst01/indi02a.htm
Per capita, Americans have more debt than Canadians:
http://www.statcan.ca/english/.....act-11.htm
And don’t forget that government’s fiscal performance in Canada is way better than the US.
Don’t extrapolate BC’s situation to the rest of Canada. Consumer spending as a % of GDP is about 10% higher in BC than Canada as a whole, but about the same as the US. That’s incredibly high for what used to be a resource-based exporting economy. BC also has an astounding -8% savings rate. Compare that with +6% 10 years ago, with higher taxes. The fact is that BC has become even more of a debt-driven consumer economy than the US. It’s just a bubble waiting to collapse.
July 22nd, 2008 at 9:54 am
um… i usually equate dressing poorly, driving an older model car, and stuffing yourself at a company bbq, as being cheap/thrifty/wise with money (but not with image – which is important or not depending on personal preference). Sounds more like a path to savings than debt.
Mr. Simpleton, are the ones with debts the same ones stuffing themselves and driving old cars?
Maybe the engineers make a shit salary. haha.
July 22nd, 2008 at 9:49 am
How the hell does one accumulate so much debt with no mortgage?
They must be spending hundreds on booze every weekend.
July 22nd, 2008 at 9:01 am
I work for an engineering company of about 70 people.
I have a family of five and no personal debt. I am the only one here in this position.
Some thirty-somethings at the office with engineering salaries, no children and no mortgages are 20-30k in debt…
When it’s time to buy new tires for the winter people are devastated and activate yet another credit card to cover for it.
And I’m not even talking about those who “own” their homes.
These guys bring no lunches to work and wear old clothes that could use more frequent washing, drive beat-up broken cars and stuff themselves at every company BBQ…
Do you think I exaggerate? Think again.
July 22nd, 2008 at 9:00 am
US Home Prices post record drop:
http://www.nj.com/business/ind....._drop.html
Down approximately 5% accross the board year over year and .3% from April to May. If we are lagging the US by two years, buckle up. 2010 should be a year we never forget, and not because of that ice thingy that’s going on. Speaking of which:
http://vancouver.24hrs.ca/News.....1-sun.html
John, I know, I know it’s different here.
July 22nd, 2008 at 8:57 am
hey you negative nagger fools.
be a bit more positive. sky has not fallen here.
No gloom and doom for B.C. economy, yet
Finance Minister Colin Hansen looked The Vancouver Sun’s editorial board in the eye late last week and maintained that, despite all the economic gloom and doom that’s going around these days, the B.C. economy is doing pretty well.
http://www.canada.com/vancouve.....936c36c93e
July 22nd, 2008 at 8:50 am
Canadians were more conservative decades ago but are no longer. Myths die hard and the media shills will continue to bleat about our fiscal responsibility and implicit moral superiority; meanwhile, Canadians are spending like a drunken sailor with a stolen credit card.
July 22nd, 2008 at 8:43 am
Yeah, Canadians are more fiscally conservative, socially responsible, environmentally friendly, compassionate, etc, etc, etc, than Americans.
Dream on!
July 22nd, 2008 at 8:28 am
That may be a meme (that we Canucks are more financially conservative than our Yankee brethren south of the border) but it’s not true.
In fact, the last time I looked, Canadian household debt was a larger percentage of total income than in the US.