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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 11, 2019 | Households Vulnerable Amid Global Downturn

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

 

In terms of relative household debt levels, Canadians measured as more financially prudent than US households heading into the 2008 recession–that was then.

 

Today, as shown beside, Canadians are world leaders in financial imprudence with both record high debt and near-zero saving rates (in red below, versus US savings rate in black).

Being worse money managers than Americans is saying something because Americans have been notoriously profligate.  (See:  Why the next recession will hit Canadians harder than Americans.)

As shown below, in the early 1980s, when interest rates were in the teens and the economy struggling through adouble-dip recession, Canadians were saving more than 15% of their disposable income.  Today, after 20 years of saving less than 5%, we are plagued by capital deficits in most institutions and households.

 

Getting saving rates back above 10% is an essential part of rebuilding financial strength and resilience.  But to achieve this we need to spend less than we earn and get out of debt via less consumption and higher efficiency.   Excersise cannot outrun destructive food choices, and large incomes or lump sums cannot outrun destructive financial management.  The facts speak volumes:   70% of people who receive large amounts of money go through it all in just a few years (National Endowment for Financial Education).

In a conference speech last week I summarized the ‘tricks’ or foundations of financial health in the slide above. Definitely not rocket science, and yet, evidently little understood or implemented.

 

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June 11th, 2019

Posted In: Juggling Dynamite

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