A recent Sun Life survey has provided some sobering food for thought ahead of a holiday season that often means less sober endeavours for many. It seems that at year end, the majority of Canadians are no better off financially than they were a year ago and that situation worsens for those 55 years of age and older. More troubling, the report showed that only 36 per cent of Canadians contribute to an RRSP, despite recent media coverage of how limited the Canada Pension Plan really is in terms of being able to support retirees.
The unsettling news may lead to some austere New Year's resolutions for many. If not, it may lead a more sobering survey come this time next year.
The Ipsos Reid survey, done for Sun Life, identified that 57 per cent of Canadians felt they were no better off financially than they were a year ago. This number rose to a shocking 61 per cent for those over 55 years of age. Of course, the survey inherently identifies that 38 per cent of those polled felt their finances had actually improved, but the story warrants a look at the 'bigger picture' rather than mere statistics. Is it really a concern that people don't feel better off than only a year ago, especially given that we're on the heels of the 'great recession' and are dealing with the slow economic growth since then? Context adds considerably to answering those questions.
The context to consider here is not 'just' that people are not doing better financially over the past year. The broader context has to look at what has occurred, within that same year, to people's personal balance sheets and to the economy at large. Specifically, this context has to look at personal debt loads (which have risen during this same period to a new historic high), the housing market (that is considered to be overvalued by as much as 60 per cent) and interest rates that are nearing a point where they will start to rise (with international economists suggesting Canadian rates will need to double by the end of 2015).
Considering these issues, low levels of retirement savings and being no better off financially over the course of a year becomes more disconcerting. One might argue that people may find themselves worse off, not just at a state of being no better off, come this time next year. If household debt loads continue to rise, house prices soften (let alone decline) and interest rates increase, this is a highly viable possibility. It certainly adds some elements to consider in light of the Sun Life survey.
What this context also does is raise some questions around peoples' interpretation of their own financial state. The Sun Life survey spoke to how people 'felt' about their financial state. Knowing that 57 per cent of respondents felt they were no better off is, of course, somewhat worrisome. But how people feel about their financial health doesn't always align with how the numbers add up. After all, debt loads have increased to new historic highs while people reported feeling their financial situation was no different than a year ago. The spiking debt load and other economic variables didn't equate to people feeling worse off.
Likewise, in the face of rising debt loads, consumer confidence numbers released at the start of December showed an actual increase in confidence. The increase was attributed to increasing house prices, despite the fact the International Monetary Fund and Deutsche Bank have called the Canadian housing market the most overvalued in the world, while the OECD has said it's overvalued by 30 to 64 per cent (depending on the ratio used). So, depending on the details of each respondent's personal financial situation, there may be a 'disconnect' between peoples' feeling of how they are and what the numbers may say about their circumstances.
Either way, the Sun Life survey does provide some interesting issues to ponder over the holiday season. While the issues may be sobering for some, they may lead others to revise some of their New Year's resolutions. Maybe debt reduction over a March break extravaganza will even appear appealing, as opposed to austere.
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