What’s the use of saving money?

How years of ultra-low interest rates have punished savers, rewarded spenders, and now might be smothering any hopes of recovery

by Jason Kirby

What’s the use of saving

Getty Images; Photo Illustration by Taylor Shute

Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.

That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover—particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”

Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history. For that matter, over the last 10-year period, following the 9/11 terrorist attacks, the Bank of Canada’s benchmark interest rate stayed above four per cent for just six quarters (in 2006 and 2007), while the average headline rate of inflation over that time was 2.1 per cent.

As a result, those saving money have seen almost nothing in the way of returns for a painfully long time. In fact, after accounting for inflation, anyone who dares to be prudent risks seeing the value of their money decline. If one were to put $10,000 into a five-year GIC at two per cent this year, and assume headline inflation goes no higher than the current rate of 2.7 per cent, the future value of that investment in 2016 will have shrunk to around $9,670. (The consumer price index the Bank of Canada uses when setting interest rates is lower than the headline rate because it excludes volatile items like fuel and food, which is fine, if you don’t drive, or eat.)

For seniors and others living on fixed incomes in particular, low rates threaten to wipe out their savings. Yet it’s also depressing for those in the second half of their careers who don’t have an appetite for risk but feel they now have no other choice. “People in their 50s are worried about what they’re going to retire on,” says Susan Eng, vice-president of advocacy at CARP, which works on behalf of aging Canadians. Between the carnage in stock markets and the collapse of interest rates, “there’s a huge amount of anxiety. You’re asking for a lot of trouble with this situation.”

Some will argue people like Patterson are simply bitter because they didn’t buy into Vancouver’s soaring housing market. And yes, those who take risks should enjoy the potential for greater rewards. That principle is at the heart of capitalism. Only, in the current environment where central banks have pushed down interest rates to abnormally low levels, and government policies encourage consumption over thrift, the dynamics of risk and reward have been severely distorted.

This isn’t how it’s supposed to work. From the moment children are given their first penny, it’s driven into us that saving is a virtue and the path to financial security starts with that ceramic piggy bank on the dresser. Only now, with policy-makers in a desperate race to reignite economic growth, all that has been turned on its head. Yes, Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have repeatedly warned Canadians not to take on too much debt, but their policies, and those of their colleagues in countries like the United States and Great Britain, have had the opposite effect, encouraging people to buy homes, cars, flat-screen TVs or take a plunge into volatile stock markets—anything, that is, but save.

“We’ve got ourselves into a position where debt and spending seem to be highly valued, but saving, which is prudent and helps people plan for their futures, seems to be almost looked down upon,” says Simon Rose, who works with Save Our Savers, a British organization that’s taken up the fight for downtrodden penny counters. “It’s unfair that the problems of the economy should be disproportionately shouldered by savers rather than those with a tendency to borrow too much and get into trouble.” No one is saying Canadians should abandon thrift and go on a wild spree of gluttonous consumption. Indeed, Ottawa has set up tax-free savings accounts to encourage people to save. But the competing priority of spurring economic activity means the interests of savers have taken a back seat and made it that much harder to act responsibly. What’s more, while central bankers have undone basic thinking about saving in the name of juicing the economy, a growing chorus of critics claim that strategy has not only failed to turn things around, but the dogged pursuit of low rates might be weakening the recovery

Sometimes Lee Tunstall wonders why she bothers saving at all. A child of parents who grew up during the Second World War and instilled in her the importance of living within her means, Tunstall, a consultant in Calgary, has rented the same apartment for 17 years and dutifully contributes to her conservatively managed RSP account. Yet all around her, friends have piled on huge mortgages and run up towering lines of credit debts in the past few years to buy homes and new Bimmers for the driveway. “If you are a saver you’re absolutely losing money to inflation, and if you go into the markets you’re losing money there too, so why bother?” she says. “Sometimes I think, ‘Why don’t I just join the herd and do what everybody else is doing, buy the toys and live it up like everybody else?’ ”

Tunstall would have plenty of company were she to give up her frugal ways. Gone are the days when Canada was a nation of savers. In 1980, the personal saving rate peaked at above 20 per cent and was still around 13 per cent in 1995. Today it stands at just 4.1 per cent. At the same time, over the last decade Canadians have increasingly relied on debt to maintain their lifestyles. The average household now owes $151 for every $100 of disposable income, a higher level than even American households reached in 2007 as the air rushed out of the U.S. housing bubble. This week, Moody’s, the credit-rating agency, said it is increasingly uneasy with the consumer debt mountain rising in Canada. “We are concerned that Canadians are relying on low interest rates to support high debt levels,” the agency said in a statement.

Much of that growth in debt has taken place since 2007, when the Bank of Canada cut its overnight rate from 4.5 per cent to a low of 0.25 per cent in 2009. The dramatic cuts, along with stimulus programs targeted at the real estate sector, revived house prices, which had begun to tumble. As of June, the Teranet-National Bank House Price index has nearly doubled over the last decade, while in markets like Vancouver, prices have soared a whopping 140 per cent. That shouldn’t have been a surprise; reckless behaviour gets a boost when government and central bank policies punish individuals for not taking part. But while the cuts were a boon to mortgage borrowers, they’ve sideswiped the saving crowd.

One way to measure the impact is to look at how much interest income is being lost as a result of low rates. Stephen Johnston, a Calgary money manager, estimates that with roughly $1.2 trillion on deposit at the banks and rates roughly three percentage points below their historical average, savers are losing out on $30 billion to $40 billion every year in interest income. He argues this amounts to a massive subsidy for the country’s banks, since the rate depositors are paid to part with their money is far less than what the banks can earn lending that money out to other people as mortgages. “Deposit rates now cost the banks nothing, but that’s not free,” he says. “Someone else is paying the price, and it’s little old ladies and people on fixed incomes who can least afford it.”

As bad as the situation is here, it’s even worse in the U.K. Last month, figures from the Bank of England showed that since 2008, when the central bank slashed the interest rate to 0.5 per cent, savers there have lost out on $66 billion of interest income. What’s more, the bank estimates mortgage borrowers have benefited to the tune of $79 billion. Meanwhile in the U.S., where rates are virtually zero and the Federal Reserve recently vowed to hold them there until 2013, the suffering inflicted on the saving crowd is especially severe. In a recent analysis for the American Institute for Economic Research, William Ford, a former president of the Federal Reserve Bank of Atlanta, estimated American savers have seen anywhere from US$256 billion to US$587 billion in potential income vanish. “None of the supposedly favourable effects [of low interest rates] are actually happening, and instead it’s having a very strong negative impact on savers,” Ford told Maclean’s. “It’s killing savers. Retirees are getting negative returns on their life savings.”

With Canada’s overnight rate at an almost-princely one per cent compared to the U.S., savers have at least had that going for them. Unfortunately, Canada’s economy shrank by 0.4 per cent in the second quarter, reviving calls for more rate cuts. At the very least, Carney now says the need for a rate hike has been “diminished.”

But as policy-makers consider a fresh round of monetary easing, some in the U.S. are warning that low rates, and their punishing effect on savers, could be doing the economy more harm than good.

While the Bank of Canada’s interest rate policies have been credited with helping Canada quickly recover from the recession, in America unemployment is still stubbornly high while house prices have continued to fall. Raghuram Rajan, a finance professor at the University of Chicago and the former chief economist at the International Monetary Fund, sees this as evidence that perpetually low rates—a long-established tool for repairing broken economies—are simply failing this time around. Instead, he believes an overlooked cause of the recovery’s sluggishness lies with America’s devastated savers.

Consider the example of China for why that is, says Rajan. For years, China has kept interest rates artificially low—well below the rate of inflation—partly to drive down its currency but also to make it easier for manufacturers and builders to access capital. That’s had the unforeseen consequence of sapping consumer spending, too, which has shrunk as a share of the economy from 50 per cent in the 1990s to just 35 per cent today. When Chinese families who are saving for their children’s education, or to take care of an elderly parent, see their savings eroded by low rates and inflation, they have responded by spending less and saving even more.

Rajan believes the same phenomena could be at work in America today. “Your traditional spenders are hesitant about splurging again, while low rates mean your savers are cutting back because their incomes are falling,” he says. “Giving savers a better deal by raising rates from abnormally low levels may help rather than hurt the economy.”

For its part, the Bank of Canada is in a difficult spot. If it leaves rates low indefinitely, there’s the very real risk more Canadians will decide saving is a suckers’ game and start to pile on debt. Yet when the bank eventually does raise rates, which it must, someday, over-indebted households could spark a fresh crisis. “Previous generations used to buy a house that was twice their household income, but now families are spending 10 to 12 times what they earn,” says David Trahair, a financial author whose new book, Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt, is due out in November. “The central banks are in a bind because they can’t increase interest rates or it will be extremely punitive to these people with mountains of variable rate debt.”

Whatever happens, Ritchie Hok, an actuary living in Ottawa, is convinced savers will ultimately wind up paying the price for others’ imprudence. At the peak of the U.S. housing bubble, Hok lived in Minneapolis and saw the excesses first-hand. While there he resisted those who urged him to get into the market; a wise move given prices are down 40 per cent there. Now that he’s in Ottawa, though, he’s hearing all the same arguments for why he should take advantage of low rates and buy a house before prices rise even further. He’s convinced Canada’s housing market is a bubble that will eventually burst, and when it does, policy-makers will rush to people’s rescue. “My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population,” he says. “Savers may get screwed on the way down, too.”

If Hok is right, the frugal few could be in for even more pain ahead. Why is it again that it pays to save?




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What’s the use of saving money?

  1. What good is wealth on paper? Most people who don’t save, spend it on frivolous things, like expensive cars, restaurants, booze or fashionable clothes, so it is simply lost. Others might buy investments, such as homes and other properties. Sure, the values of their assets are steadily climbing, but once interest rates go up, many will lose it all.

  2. I’m surprised that the article didn’t approach the fact that savings (a.k.a deposits) are what banks should be using to make their investments and that without savers there really is no business for the banks and therefore for the whole country.  THAT is what’s so good about saving.  This isn’t a purely personal choice – it’s a choice that effects the entire community: regional and national.

    • Ahh, the old myth that banks use money on deposit to make loans and investments.  When banks lend money, they create it out of thin air with the stroke of a few keys, under the burden interest.  This necessitates further loans to pay off the interest of the initial loan, ad infinitum, thereby trapping everyone else that does not have the legislated authority to create money out of thin air in an inescapable cycle of debt.  This is called fractional reserve banking. 

      When it first started the common ratio of outstanding loans to reserves on deposit was 9:1, which was bad enough, but now it is many hundreds to one.  Most people go into denial upon learning this simple fact, but its true.  And then they wonder why the banks continue to make billions in annual profit.

      • Yep.. that’s why I said “deposits are what banks _should be_ using…”
        I know all about the fractional reserve system.  What I don’t know is how any country can get out from under it.  

        • 10-4.  At least the point will be clear for everyone else now.

          • I should have thanked you in my reply, above… I am glad that you took the time to make the point because it’s a good one.  

  3. I have been saying this for years. This is also one of the main reasons the stock market has been going crazy. People have nowhere to put their money. If they go with a GIC, they are actually losing each year, so if they want to ‘make money’ their only option is the market. That is one of the reasons it ballooned (along with leveraging – hey, it was cheap money).

  4. @artlover2 the banks are making money on mortgages… and when interest
    rates go up and the owners default, the CMHC will save them!

    Yup, the Cons screwed up the CMHC huge and all these defaults are
    insured. Zero risk to the banks! Who pays for these defaults? Tax
    payers! Of course the Cons want to eliminate the CMHC, because they
    screwed it up real bad! And of course they’re gonna blame the CMHC on
    the Liberals who created it.

    Always remember it was the Cons who introduced the 5/35 and 0/40
    mortgages and kept interest rates extremely low. These were the
    catalysts that created this Real Estate Bubble!

    • How did the “Cons” screw up?  If you want a mortgage outside certain parameters, you must purchase CMHC insurance.  It is that insurance which protects the bank, and it is funded by the premium paid by the person buying the insurance.  Unless the CMHC has to cover so many defaults that it exhausts its funds, you are just blowing lukewarm air.

      • Sorry, didn’t get to finish that comment. The Conservatives allowed 40 year mortgages; however, their error compounded an earlier problem when CMHC removed the upper limit on mortgages that they would insure. Thus, banks were willing to offer larger and larger mortgages because, for them, it’s risk free. If the borrower defaults, CMHC pays. And if CMHC runs out of money….it’s up to the taxpayer to pay: http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/

        • I see the potential problem, but in reality the premiums are at least nominally proportionate to risk and CMHC normally turns a pretty healthy profit.  I don’t make a habit of assuming the worst imaginable scenario when assessing a policy.

  5. An excellent and enjoyable article! The parallel between the Canadian and Australian property markets is unnerving. Actually, substitute ‘Canada’ with ‘Australia’, or ‘Vancouver’ with ‘Sydney’, and the article would be just as accurate. The housing sectors in both Canada and Australia are ultimately doomed. The party’s over. Here in Australia vendors are removing their overvalued houses from the market and leasing them instead, because nothing is selling, at least not for the ridiculous prices the owners expect, and auction clearance results have dropped to dangerously low levels (see http://australianpropertyforum.com/forum/3210735 ). In fact, Brisbane had a zero percent clearance rate a few weeks back! Australian and Canada have both been running Ponzi schemes with our housing assets. This is ultimately very damaging for our future, and totally unsustainable, when each spare dollar of disposable income is wasted on overvalued homes and excessive debt, while young families battle to find affordable shelter and speculators hoard  the real estate stock!

    • @artlover2:disqus  Thomas, . . . . great observation.  Canada is in an Immigration trap.  Out of control immigration is spiking real estate, but a majority of immigrants go onto the welfare roll and onto the free healthcare system.  

      Canadian taxpayers paid for generations to build a healthcare system that now can’t help them properly, and is breaking. It is overloaded. A majority of immigrants of the past 20 years are too young or too old to work. It’s a mess. What is sure, is that the Federal and Provincial governments are broke.  The MSM refuses to address it, and the politicians are afraid to say anything about the corruption that has seen China take over whole government departments in Canada.  

      I suspect that Canada is in worse trouble than Australia.

      • You are certainly right about the health care system. propaganda overcame history and common sense. Government run programs do not work.Lots of evidence there. In Canada the nursing home situation and social housing are examples. Now add health care. If health care was in the private sector it would work like all the other private sector activities. They produce. If there are faults, say like lack of facilities they are quickly fixed. How often have you had to wait for a car, or a house or a building for your business?

        Think of the amount of debt which could be avoided by letting the private sector do its thing in the health care field.

        • umm… “Think of the amount of debt which could be avoided by letting the private sector do its thing in the health care field…” I think you might be a touch wrong.. just look south for the great results, from a fiscal/monetary standpoint to the consumer. Medical bills prompt more than 60 percent of U.S. bankruptcies. We don’t need that in Canada. 

          • With health care in the private sector, you are right – there would be bankruptcies caused by large health bills. Individuals are adversely affected and thus would have to ask for help, as poor people do now. This is a major problem in the US – access to the government services is complex to say the least. (My suggestion is to give the poor money, yes money, for all their needs not just health care. Certainly some are going to cheat but so what, the vast majority of poor people deserve help and they are a small percentage of the population. We can afford that.)
             
            With government run health care virtually everybody; well most people are adversely affected because services simply are not available. Our local paper is forever telling stories of hospital crowding caused by a shortage of nursing homes; that has gone on for decades.  Shortages, if they occur in the private sector are quickly corrected.
             
            In short, take your pick – private sector health care with some individuals being abused or government run health care where virtually everybody is abused.
             
            Again, look at all the services provided by the private sector. Where has it not provided good service? Why should health care be any different?

          • Your argument is a fallacy, it could fit into a variety of know fallacisious arguments (known as cum hoc ergo propter hoc which is a faulty assumption that correlation between two variables implies that one causes the other OR one of generalization ). 

            Additionally, imposing a sweeping condemnation on ‘public’ health based on an ideological point of view isn’t looking at the bigger picture. The ultimate indicator of a society’s health is its life span, Canadians (on average) live 2 years longer than those in the USA. I am not saying there are not problems with Canadian health care, but they pale in consideration with the US model. Most services that are a ‘public good’ are often not best served entirely by private enterprise; the profit motivation drives an over-service (performing unnecessary procedures) or a hollowing out of necessary service. There is no net benefit besides the profit in a private health care system. That is why a society’s health is a public effort and public good. The benefits are wide ranging and not easily quantifiable, but they are there (now and many years down the road).

          • Malingerer
            Your reply to my last post does not have “reply” at the end. So here is my reply here.
             
            “imposing a sweeping condemnation on ‘public’ health based on an ideological point of view isn’t looking at the bigger picture.”
             
            Ditto for private health care.  Ideology can be ignored. Look at facts.
             
            Public sector programs which I find wanting include social housing, nursing homes, health care, justice system, defence to name a few. I am not suggesting that these should all be in the private sector but they do show that the public sector running an operation is not efficient. The evidence is overwhelming that given a choice; the private sector should run operations.
             
            What service provided by the private sector do you find wanting?
             
            I am not recommending the US system. It has been called private sector by the media; the private sector part of the system is excellent. Individuals get in trouble when they encounter excessive costs. Not everyone is affected, just as some people have trouble when buying a car or a house or whatever. The US system provides little backup if individuals get in trouble. In other words it is the public sector of the US system which gives problems.
             
            What service provided by the private sector do you find wanting?

          • An example of giving the poor money…A low income person recieved a $100,000 insurance payout, he chartered light aircraft loads of liquor to his remote community until the money ran out. That $100,000 sure helped him!

    • Try reading “The Spirit Level - How more equal societies almost always do better”. Having a good economy is vastly over-rated. Improving the economy will not, based on evidence from developed countries, improve living conditions.

  6. Finally..a public forum that unveils the idiotic fiscal policies that allow opportunists to spend us all into poverty.  I can hear the Greeks laughing; after all they work 24/7… 24 hours a week, seven months of the year.  Blaming it on “cons” as “Benjamin Frost” does is a cop-out.  Liberal politicians and thinkers who bribe us with our own money; teachers who refuse to fail even the most stupid students and “kumbaya” groupies got us into this mess.  A little bit of thrift and a smack on the head is needed to get us all back to reality.  Wake up and realize that you can’t spend more than you earn!

    • Benjamin and Marty – both Liberals and Conservatives are to blame, just as both Democrats and Republicans in the U.S. are to blame.  They are all (ALL) heavily lobbied and they are ALL in the back pockets of the FIRE industry.  Do you think Obama is running the show in the States?  No, it is the Federal Reserve, Goldman Sachs, J.P. Morgan.  Obama is a puppet who reads a good teleprompter.  He was well chosen by them.  There are 70,000 lobbyists in the U.S. and for a large donation to campaign coffers, you can pretty much get anything you want.  The Governor of the Bank of Canada, Mark Carney, was from Goldman Sachs.

      Marty, the government does not want thrift.  They are practically throwing money at us.  The stupid students have become realtors, and the “kumbaya” groupies have nothing to do with it.  Governments are not listening to these people; they’re listening to the financial corporations.  This has been the biggest Ponzi party this side of the universe!!!!  And we all know how Ponzi’s end if there isn’t a new sucker found.  The bait has been set in order to lure them in.  

      David Trahair said, “The central banks are in a bind because they can’t increase interest rates or it will be extremely punitive to these people with mountains of variable rate debt.”  Do you mean punitive to the marginal buyers who would never have been given a mortgage if the “free market” was operating and “risk” was taken into account?  Do you think for a second the banks would have loaned money to these people if CMHC didn’t have their backs?  

      The government is in cahoots with the corporations (mainly from the FIRE industry) and the game play is privatize the gains and socialize the losses, and you and I will pay dearly for it.  

      • Exactly right.

      • >Do you think for a second the banks would have loaned money to these
        people if CMHC didn’t have their backs?

        Do you understand how the CMHC works?  The CMHC doesn’t have “their backs” without exacting a price first.

  7. Good article.  100% correct (yet nobody else is saying it).

  8. I retired at 55 with 3 rental properties and our home paid for.  My wife and I also had some modest mutual fund investments.  I didn’t see the crash of 2008 coming in time and we lost about a third of our fund equity before I took out about 50 % of what was left and put that into GIC’s which we still hold and won’t come due for another year.  Certainly the GIC’s are also a losing proposition, but not nearly as bad as what is left of the mutual funds.  Those have never recovered and with the next depression upon us, probably won’t.  When I suggested to my financial advisor (a well-known outfit) in 2008 that perhaps we should diversify into gold, he poo-pooed the idea.  Well, you know where that went.  Our future is uncertain and hopefully by the time the GIC’s come up for renewal it might be a little clearer as to what our choices will be.

  9. Meanwhile those who are over 71 and subject to RRIF withdrawal rates starting at 7.38%  and rising annually are being hammered and many will not have enough principle left in their RRIF (retirement savings) to make it to death without turning to government for support. Government will help if you are an auto manufacturer but not if you are subject to statute mandated annual RRIF withdrawal rates. Most of us affected do not want to avoid taxes, we simply want the rates moderated to a reasonable level as imposed in other countries such as the U.S.A. and Australia. When the end comes (death) Government can have at the balance of the RRIF. That is much better than humiliating the elderly by taking away their savings and leaving them dependent on government handouts.

  10. Its really odd how Canadians just stand by and take all this. 

    The banks are allowed to create money (i.e. a loan) out of thin air and then charge interest on that loan.  This is the root cause of inflation.

    Our own Bank of Canada (headed up by Goldman Sachs man Mark Carney) has been privatized since 1974, making it necessary for the Feds to borrow money at interest for capital projects, etc..  From 1935 until then, the federal government had the ability to spend this money into circulation, rather than borrow it, which is why we were able to finance the WWII effort, build the St. Lawrence Seaway, the Trans-Canada highway, and contribute to thousands of other public works without being overly burdened by debt.

    For the past 25 years, we have been bombarded with propaganda about how great free trade is for all of us, despite the fact there is NOT A SINGLE INDICATOR of the social or economic well-being of average Canadians that hasn’t declined in that time period.  We’re just supposed to take the government’s word for it.

    Our education system has been dumbed down to the point where a typical university grad has fewer skills and less knowledge than a typical high school grad of 40 years ago.  Back then it was the norm for someone with a high school diploma to be able to immediately step into a good-paying job and buy a decent house (yes, they were smaller on average than today) and start raising a family on that one salary. Its practically impossible to do that today with a university degree and stay above the poverty line, let alone be considered middle class.  Most young people with just high school can look forward to a life of poverty.

    And we just sit back and accept it all.

    • ” start raising a family on that one salary. Its practically impossible to do that today with a university degree and stay above the poverty line, let alone be considered middle class”

      Do you have the figures comparing real salary 40 years ago with salaries today?

  11. My parents grew up in the depression and taught me to pay cash or do without. Not only am I not earning any income on my savings, but I have almost no savings because prices have been driven up by the spend now, pay later crowd, and that includes taxes. Low interest rates do not make houses more affordable because the prices just rise to keep the payments up. 

  12.  
    Here we go again. Economy, economy. It has become the be-all and end-all of our lives. Given a choice which would you want, a stronger economy or a better country in which to live? This is a valid question. The book “The Spirit Level – how less unequal countries almost always do better” uses data from 180 countries. The data shows that health and social conditions improve in poor countries as the economy improves. However health and social conditions vary little if any with an increase or decrease in economic strength IN DEVELOPED COUNTRIES.
     
    In developed countries health and social conditions correlate well with inequality of income.
     
    So rather than spend countless hours concerned about the economy we should concentrate on inequality of income. The following are the ratio of average income of the richest 20% to the poorest 20%
               
    Canada 5.5  Portugal 8.0 Sweden 4.0 US 8.4 Japan 3.4
     
    The index of health and social conditions is much higher, that is worse conditions in Portugal and US than in Sweden and Japan.
     
    That is the challenge then, how to decrease inequality fairly, hopefully voluntarily at the top end. Warren Buffet has set an example. For the lower end I suggest giving money to the poor, particularly the poor who are poor for no fault of their own. And for those who don’t want to give to the poor, please look at the transfer of wealth to richer people through tax free savings, RRSPs, plension plans, etc. The poor through taxes pay part of that.
     
    Most important, any decrease in inequality leads to better health and social conditions for all.

  13. The logic and tone of this article is so defeatist. Why are you normalizing bad credit behaviour?  If you rack up $10,000 in debt, and I’ve saved $10,000 (even if it decreases to $9,760 due to market fluctuations) I’m still way ahead of you with my nest egg.

  14. We are having technical and other problems in comment by “Thomas Kline”.
     
    Could anyone name a government run program that has worked?
     
    Programs that have not worked include social housing, nursing homes, defence, and our judicial system and health care.
     
    Can anyone name a private sector run program that has failed?

    • California-built solar panels.  Oh, wait…

  15. For High Rates of Return on investment, Stress Free, Hassle Free, All the work is done for you,
    go to BuyUsHomes.ca.

  16. So who wins, ants or grasshoppers? The savers are saving and are out of the market losing a couple of percent. The banks are 100% insured.  The Government can tax to cover losses and even make a law like the lieberals did to take away half of the more than fully funded public service pension fund (30 billion) to pay for social services or CMHC debt.  Now wait for the european crash, the US and China crash, and the canadian realestate crash and if you are a saver that is the time to deploy cash into a severely depressed world market.  Ants win! 

  17. This entire article SCREAMS at those with smarts, to get educated in financial matters.  Our schools don’t teach finances, our parents can not because they too never learned either.  ” Financial Planners ” -  note in quotes – simply say to invest in the stock market, with it’s volitility. 

    So what to do.  GET EDUCATED.  Learn !   Learn stratagies, learn the theory behind the economics, plan ahead, and stop digging that financial hole.   But mostly,  GET EDUCATED !  LEARN !.

    Learn how to intelligently save, intelligently invest, intelligently get out of debt.  LEARN ! 
    And then apply what you learned.
    Start with small steps and make the steps incremental and reinforced through usage.
    Put your credit card litteraly in the freezer to stop the instant gratification, I want it now syndrom.

    Borrow to MAKE money, not spend money.
    Learn, that word again, learn the laws regarding Canadian taxes.  There are so many  legal loopholes, you can improve your take home pay by about $ 4,000 to $ 5000 per year by hoving a 2nd business in your home, if you know the tax laws of Canada.
    LEARN !!!!  learn  learn.
    Apply the knowledge and with time, you too will be out of debt and with substantial net worth.

  18. If savers were to put their savings in real money (ie gold) then they would have maintained the purchasing powers of their savings.  When the interest paid rises to the point where it exceeds the real inflation rate then you can convert your gold back to paper currency.

  19. man thats crazy, i’m pulling my momey out of my savings and buying a house right away

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