When I came across this week’s Maclean’s, I was pleased to find the theme of saving displayed on your cover page. With personal debt levels in Canada at an all-time high, I assumed that your feature story would be a cautionary tale for Canadians to be frugal with their money.
Imagine my surprise when I read Jason Kirby’s article entitled ‘What’s the use of saving?’ which actually discourages Canadians from using savings accounts. I’m aghast that a well-respected publication like Maclean’s would choose to publish a misinformed and one-sided article that argues vehemently against the responsible act of saving.
There are several prominent flaws in Mr. Kirby’s article. Most notably, the article focuses entirely on investing in the housing market as an alternative to saving. While housing seems like an attractive investment right now, we must keep in mind that, similar to the U.S. housing market, our own market can fall hard and fast. Mr. Kirby also fails to mention that Canadians may be investing in other types of vehicles (such as bonds and equities) that are extremely risky in today’s volatile environment. Investors are losing money every day because of alternative investment methods that are dramatically affected by turbulent markets.
I am surprised he doesn’t acknowledge the benefits of registered accounts such as TFSAs and RRSPs which significantly improve the return offered by savings accounts and GICs. TFSAs are the most flexible registered investments available, yet just over a third of Canadians are using them, and many are nowhere near using their full contribution room, with the average investment around $6,800 according to a recent survey. This is a no-brainer. Every Canadian should have one of these accounts.
It wasn’t long ago when Canadians didn’t have a choice to invest in higher interest savings account, let alone earn tax-free interest income, and they piled their money into “savings” accounts that paid 0.25 per cent. The reality is that a savings account, especially a no-fee account paying 1.50-2.00 per cent, and protected from tax on interest income, is the closest an investor can get to a risk-free investment vehicle. It’s also the easiest way for everyday Canadians to save. More sophisticated investors have the luxury of monitoring their investments regularly, but most Canadians just want to ensure that their money is safely stowed away with no risk of depletion. Unlike investments in housing, savings accounts are liquid, insured and easily accessible, allowing Canadians to quickly withdraw money, pay down debt when necessary and sleep soundly at night.
Given the alarming level of personal debt in Canada, saving should be a bigger priority to investors than it normally is. ING DIRECT recently conducted a survey on saving patterns in Canada, noting that one in two Canadians are unable to put away an extra $25 a week and that 41 per cent say that saving this amount per week would make them happier, and get them closer to paying off debt. In this environment, there is clearly enormous value to consumers to build and use their savings accounts more responsibly.
Mr. Kirby argues that Canadians should be investing their money rather than saving in today’s low-rate environment, when we should really be focusing instead on using the low rates to pay off debt. Why should families with little disposable income dabble in risky investments, when their money can be better spent in a savings account or towards getting out of debt? Mr. Kirby also asserts throughout his article that frugal savers are losing money because of inflation, but fails to mention that we are currently in a state of low inflation, with a real risk of deflation.
Canadians historically have been a nation of savers, and this is one of the reasons why our economy has been so resilient in tough times. Saving, even in today’s low-rate environment, is fundamental to a sound financial household. Canadians need to continue to save in order to ensure peace of mind, freedom and the ability to plan for the future. Regardless of rates, money in savings accounts is the most risk-free guarantee that your earnings will not be lost—it is simply irresponsible for Maclean’s to suggest otherwise.