Tag Archives: Karin Mizgala

Men and women see retirement differently

When I started out my career in financial services I was skeptical about gender difference claims when it came to money. But over the years I’ve come to believe that while the capacity for financial understanding isn’t different, the relationship women and men have with money is. For one thing, women generally admit to having a lot more fear about money and studies have borne this out.

A few years ago, the US company Allianz Insurance found that over 90% of women lacked confidence when it came to money and 50% of women, even those earning over $100,000, worried about becoming a bag lady one day.

Some of the challenges women face are well-founded – women often still earn less that men. (On average, Canadian women earn about 66% of their male counterparts). And, although the gap is narrowing, females can still expect to live almost five years longer than males which add to the severity and complexity of their concerns, especially in their later years.

A recent study by Sun Life Canadian Unretirement Index highlights some other differences:

  • Twice as many men than women say they want to work past 65
  • Women are more likely to be concerned with long-term care, low interest rates and death of a spouse
  • Women working past age 65 are more apt to worry about covering their basic living expenses
  • More women believe their company pension plan will not be enough to live on
  • Fewer women than men are confident they will be able to maintain the lifestyle they want
  • Women tend to be less confident about the overall economy – and their personal finances

Each of these points has wide-ranging implications not only from a financial point of view but also in terms of emotional well being. Somehow individuals, financial advisors and we as a society need to address the stress and anxiety that often come with retirement. This is especially true as the Canadian population continues to age and there is less financial certainty in respect to the overall economy, government and company pension plans, and our own investment savings.

The Sun Life study also points to a possible remedy to retirement concerns. Both women and men were “significantly more confident about their retirement if they had worked with a financial advisor.” Coming from a financial services company, this last statement might seem a little self-serving, but there is no question that being more educated, knowing where you stand with your money and doing some advance planning can make a vast difference in your level of financial confidence when it comes to retirement. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Do Financial Experts Really Know Anything?

One of my clients was recently shopping for a new investment advisor and, on my recommendation, interviewed several to see if she could find a good fit. While she found all of the advisors she spoke with to be approachable and very knowledgeable, none of them could assure her that they would be able to predict the next market downturn in time to protect her investments from a drop in value. She was also a little disconcerted that one advisor’s prediction about the market was the exact opposite of what another said. Disheartened, she came to this conclusion – “basically they have no idea”.

While this statement may be a little jarring, I think she accurately captured how people are feeling these days. If advisors don’t know, what are we paying them for and where does that leave us? As a consequence of the breakdown of trust in our “experts”, there’s been a big movement to the “do-it-yourself” model. This works well for some, but it leaves a lot of folks who are already feeling maxed out with life responsibilities feeling stressed, vulnerable and unable to move forward with their finances. Clearly there is still a need and important role for advisors to play.

Fortunately there is a new advice model evolving in the market place. The old “expert-client” model where the advisor “knows all” and the client “knows nothing” is being replaced by a more collaborative relationship. This profound paradigm shift can be troubling for both the advisor and the investor who aren’t prepared for this monumental change in how we do business. On the other hand, it can lead to a much healthier approach to money management. Let’s face it; financial advisors are neither soothsayers nor all-knowing experts (as this past year has certainly demonstrated). And, thanks largely due to the internet, clients are much better informed than ever before. Financial advisors are still a valuable resource – we simply need to get more involved, redefine our expectations and learn how to work together better.

Become an Informed Consumer of Financial Services
By becoming educated, involved and on top of your money, you will be in a better position to work more collaboratively with your financial advisors. You’ll have the confidence to be an active partner in your financial affairs rather than a passive observer or helpless victim.

So, how do you choose a financial advisor under this new model? The first task is to find someone you can trust. This can take some time and research. It starts with you being clear with your goals, the type of advice you are seeking and an awareness of what your expectations are of your advisor.

It’s best to ask for referrals and interview 2 or 3 potential advisors.  Ask hard questions and remember – the advisor is there to serve you so make sure they are listening to you and treating you with respect.

Questions to ask:
Can you describe the type of clients you serve?
Do you have a minimum investment or net worth requirement?
What are your qualifications?
What are the fees for your services and any products/investments you sell?
How are you compensated?
What products and services do you offer?
How often will we meet and how much contact will we have?
Will I be working with you or with your assistant?

More questions for advisors who manage investments:
What is your investment philosophy or approach?
What can I expect from you in market downturns?
How will I know how much money I’m making?
How is my rate of return reported to me?
How often will I receive my statements?
Will you explain them to me?

Even if you work with a financial advisor, it is up to you to educate yourself so that you can delegate, not abdicate responsibility for your money. And trust your gut – if you don’t feel good about your connection with the advisor then move on to someone else. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Move over Piggybank, Moonjar is here

For many kids the gift of a piggy bank from a grandparent is about the closest they get to a financial education. Little wonder then that years later many adults find talking about money intimidating, confusing and stressful. Is there a better way to introduce children to healthy attitudes towards saving, spending and sharing? The partners in an innovative school program in British Columbia believe they have some of those answers.

The pilot project is a collaborative effort between Moonjar Canada, a children’s financial education company, the North Shore Credit Union, and the North Vancouver School District. The project is built on the Moonjar financial educational program for children that encourages them to “shoot for the moon”, to go after their dreams and goals, but to learn good money habits along the way. Moonjar was initially launched in 2001 by Eulalie M. Scandiuzzi, a native of Seattle, but it is now found in homes and schools around the world.

Central to the Moonjar approach is a whole new style piggy bank. Instead of the old one-slot icon we are all familiar with, the award-winning ‘Moonjar’ has three compartments “that remind us of the choices we can make with our money. One each for: Saving, Spending and Sharing.” A host of games, books, teaching aids and other materials rounds out the program for a wide range of age groups.

Brent Dobson lives in Ottawa and works in the financial management and consulting world. He discovered Moonjar while looking for positive tools and resources to help teach some basic money concepts to his three children, ages 8, 5 and 1. “I know how important money is in people’s lives, but most of us get off to a bad start”, he explains. “I wanted my own children to grow up with a healthy attitude towards money, so I went looking for something we could use as a family to open up conversations about allowances – about sharing with others – about making smart financial choices – and saving for things you really want or need.”

Dobson became so passionate about the Moonjar program that he obtained the Canadian rights. He now shares his enthusiasm with financial educators and parents across the country. The first Moonjar kid in Canada? His daughter, Emma, now 8-years old. “I was really impressed with her”, Dobson relates. “She went from being a spender to a sharer. We had long conversations about the different places she could direct the share portion of her money. She decided to help support the Children’s Hospital. That was her choice.”

Equally enthusiastic about Moonjar are Lianne Dunster and Catherine Downes of the North Shore Credit Union, in North Vancouver. In partnership with the North Vancouver School District, they are running a customized bilingual version of the program, using what they call a “Wishbank.” Joanne Robertson, District Principal for the North Vancouver School District, says “The ‘Moonjar’ moneybox provides us with a creative way of teaching financial literacy in the primary years. It fits well into the Grade 2 math program.”  Plans are already in the works to expand the program to other school districts and other grades.

As Dunster says, “It is so exciting to help a child open their first savings account. This program just builds on that. It makes money matters easy to grasp.” And Downes adds, “It is so visual. And it is a cool way to open discussions about money.”

Sounds great. Now I know what I’m getting my husband for Christmas! – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Mutual Fund Lingo – A Primer on Fees

Chances are you own or have owned a mutual fund at some time. But do you know how much you are paying for your funds? Because you don’t usually see what fees you are paying on your statement, it’s easy to ignore the issue of fees. Turns out most other Canadians are doing the same thing.

According to Garth Rustand of Investor’s Aid Inc., Canadians are very passive when it comes to fees and we consistently pay the highest fees for mutual funds of any industrialized country – apparently we pay as much as 60% more than in the US and 200% more than in Europe – yikes!  Are we getting our money’s worth? Pretty hard to tell unless you understand some of the industry lingo and what goes into the mutual fund fee calculation.

Take “management fees” and “management expense ratios”. It’s a common mistake for investors to use the terms interchangeably, but they are definitely not the same.

Simply put, management fees represent the payment to fund managers for selecting the investments to include in the fund and are only one component of the overall fees you are charged.  The number that you should really be interested in is the management expense ratio or MER.

The MER includes the management fees plus other “indirect” costs such as: fund administration charges, legal, audit, custodian fees and transfer agent fees, advertising and marketing expenses and GST. It can also include sales commissions and ongoing trailer fees that are paid to your financial advisors for selling you the funds.

And just how much of a difference is there between the two charges? Let’s look at an example. Fidelity offers a Large Cap Canadian mutual fund with a management fee of 2.00%. After adding in all the other charges, the MER comes out at 2.47%.

So where does the MER show up in your fund? Because the MER is embedded in the published rate of return you don’t really see it, but it’s there if you look closer.  If the above mentioned mutual fund had an annual rate of return of 5.3%, this means that the investments actually yielded a return of 8% but then expenses of 2.47% were subtracted.

If you are comparison shopping this is the main number that you will need to compare – the rate of return after all expenses are deducted. MER information is published in the prospectus that you are given when you buy a mutual fund and can also be found on mutual fund info websites like globefund.com and morningstar.ca or by asking your advisor.

When comparing MERs from one fund to another make sure that you are comparing apples to apples. Typically management expenses ratios are highest for the specialty stock mutual funds and lowest for money market funds. Bond and balanced fund fall somewhere in the middle. Don’t try to compare the MER from one fund to another if the underlying investments are from different asset classes.

Because the MER can include commissions and trailer fees paid to the advisor channel, “load” funds typically have higher MERs than bank funds or “factory direct” mutual funds. Some of the better know mutual funds companies like Mackenzie, Fidelity, CI and Templeton are load funds offered through financial planners and investment advisors

“Factory direct” funds like those offered by Phillips Hager and North, Leith Wheeler, Mawer, or Steadyhand to name a few, often have lower MERs because they sell their funds directly to the investor through their own advisors.

Should you always go for the lowest MER funds? Of course it’s better to keep more in your pocket, but you also have to weigh out the value of advice. If your advisor is giving you great service and top notch financial planning and investment advice, then as long as you know what you’re paying for and see value, don’t fix what ain’t broke. If not, it might be time to explore some of the lower expense investment options. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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“Money Matters – But Less Than People Think”

On one otherwise unremarkable day, countless eons ago, one of our shrewder ancestors first exchanged puka shells, a red pebble, or a nugget of shiny metal for a wildebeest steak and human commerce was born. Or, more accurately, money was born. Ever since then people have been trying to link money and happiness. Are we happier with more money? Are we less happy with less money?

When asked if she is happy, Lara Aknin just laughs. Aknin is a doctoral student working with Dr. Michael Norton, Assistant Professor at Harvard Business School, and Dr. Elizabeth Dunn, Professor of Psychology at UBC. They are part of a growing body of researchers examining the links between money and happiness.

Lara speaks enthusiastically about her research and the conversation ranges from various psychological theories, to the recent economic crisis, to the country of Bhutan, the small Himalayan kingdom which measures its Gross National Happiness (GNH) along with its GDP.

“Money is only one factor that influences happiness,” Aknin says. “Work in the fields of Social and Positive Psychology, shows that personal relationships, religious beliefs, exercise, feelings of gratitude, random acts of kindness, as well as higher income, can all affect our sense of well being.”

Aknin is co-author of a recently published paper entitled “From wealth to well-being? Money matters, but less than people think,” that appears in the Journal of Positive Psychology.

According to their research, “a striking inconsistency surrounds the relationship between money and happiness.” It suggests that people “engage in behaviors designed to increase or maintain their wealth because they overestimate the impact that income has on well-being.”

People at different levels of income were asked to report on their own happiness and to predict the happiness of others. As one might expect, those surveyed accurately predicted the “moderate emotional benefits associated with being wealthy”. The big surprise was that they expected “low household income to be coupled with very low life satisfaction”, but that wasn’t necessarily the case.

As Aknin points out, this research might have important practical considerations for career choices, shorter work weeks or early retirement.

I frequently reassure my clients looking at a career transition or early retirement that a reduced income might not be nearly as bad as they fear. Now, thanks to Aknin and her colleagues, I have the research to back up my pep talks. As for finding an extra day for myself every week? That’s something that would make me very happy! – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Should You Borrow to Invest?

With interest rates at historic lows, a rising market, and money starting to flow again, some investment advisors are encouraging investors to look at the merits of leveraged investing.

Is this a good idea? Maybe, but first look at your reasons for why you want to borrow to invest. Are you hoping to make up the money you lost in the stock market over the past year? Do you feel like you’re just not getting ahead fast enough and want to implement what can sound like a “sophisticated” investment strategy? Or perhaps you’re facing increasing pressure from your investment advisor to put more money into a hot market.

There are conscientious advisors out there who can be of great assistance in advising you about the pluses and minuses of leveraged investing, but you should also take responsibility yourself to make sure this strategy fits with your goals, your psychology and your risk tolerance. Here are a few pointers to help guide you along the way:

Pluses of Leveraged Investing:

  1. You can magnify portfolio returns;
  2. You can deduct interest rates at your marginal tax rate. (Note, however that your investment must have the capability of producing income – not just capital gains. You might need to consult a tax expert.)
  3. The cost of borrowing has never been lower. Some firms are offering an interest rate of prime + 1% on investment loans – or about 3.25%;
  4. Dividend yields on many corporate stocks and bonds are outpacing interest rates;
  5. Investors who are best suited to leveraged investing are generally those with no mortgage and low debt, a stable cash flow and a thorough understanding of the risks of leverage.

The Down Side:

  1. While leverage can magnify gains, it can also greatly magnify losses;
  2. Leverage adds a whole new level of risk to investing. You could be putting the collateral of your loan at risk, such as your house or mutual funds;
  3. Buying “on margin” through your investment dealer typically means you can borrow up to 50% of your investment on margin. The danger is that if the markets drop, you are liable for a margin call requiring you to put money into your account to cover any shortfalls;
  4. Remember, there is never a good time for a margin call. Just ask anyone who has experienced one in the last year what they now think of buying on margin.
  5. Debts of any kind can dramatically increase your stress load. Paying off debts on investments that have just tanked is no fun;

Leveraged investing can be an attractive way to accumulate dividend-paying stocks and bonds if you have a long term investment horizon of ten years or more. Unfortunately many ill-equipped, ill-advised and ill-prepared people are also lured by the prospect of borrowing easy money to speculate in the market. Not only is that just plain bad business – it is also a recipe for disaster! Be careful out there. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Mischievous Strangers & A Steadyhand

Economic depressions, recessions, downturns, slumps and hard times are nothing new. In his novel “Hard Times” written in 1854, Dickens comes down hard on the bankers and other financial experts of the day and rages against their dubious use of statistics to confound and befuddle the common man.

There is a rather poignant passage in Dickens’s rant against the economic power brokers of his day that bears some reflection during our own “hard times”:

“Now, you have always been a steady hand hitherto; but my opinion is, and so I tell you plainly, that you are turning into the wrong road. You have been listening to some mischievous stranger or other – they’re always about – and the best thing you can do is, to come out of that.”

Tom Bradley hardly claims to be a latter-day Charles Dickens. But as President of Steadyhand, a rather aptly named Canadian mutual fund company, he does write frequently on what he sees as the problem of relying on those “mischievous strangers” to do our financial thinking and investing for us. As Bradley puts it, “I am continually impressed by just how wrong economists and financial analysts can be.”

I personally like Bradley’s investment philosophy that relies on a straightforward lineup of no-load, low-fee mutual funds that Steadyhand offers directly to investors. He believes that most Canadians are over-diversified and overwhelmed with too many investment choices and too many flavors of the month. His firm offers 5 funds with concentrated portfolios largely unconstrained by geography and market cap size.

Steadyhand is also firmly committed to “transparency” when it comes to rates of return and fees. Their statements are simple, clear and easy to read – a rare and welcome occurrence in the industry.

Before launching Steadyhand, Bradley was President and CEO of the highly respected investment firm, Phillips, Hager & North. “I learned from the best, like Art Phillips and Bob Hager. They tried to keep it simple – and they were right!”

Despite his many years in the business, Bradley is still shocked by how few investors have an investment plan, even those with large portfolios. He insists that even a “back-of-the envelope” plan would provide a framework to help guide investors through a maze of often contradictory information, advice and, yes, statistics. “Even a simple spreadsheet can tell you a lot about a proper asset mix”, he insists. “Most people are way too diversified. Without a plan it is difficult to know what a good asset mix is.”

Bradley is committed to educating the public about the investment industry from an “insiders” perspective and isn’t afraid to express controversial views in his regular blog posts and Globe & Mail column. For an interesting read on how the company started out, check out The Steadyhand Diaries.

Steadyhand runs a series of info session across Canada where investors can “kick tires” and, as Bradley puts it, “learn how Steadyhand is changing investing in Canada.” Not sure that Canada needed yet another mutual fund company, but this one just might be on to something. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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The Goldilocks Guide to Life Insurance

Not too hot – not too cold – but just right!  Unlike in the Goldilocks fairytale, most people don’t get it “just right” when it comes to insurance. Most of us are either under-insured or over-insured. Yes, over-insured!

So, let’s start with how much life insurance your family truly needs. If either you or your spouse dies, would the survivor(s) have sufficient means to:

  • Pay off debts
  • Maintain their lifestyle and continue to save for the future;
  • Pay added expenses, such as funeral arrangement, legal or estate tax bills.

If your family has the financial capacity to cover the above (make sure you go through the exercise for each spouse), then you likely don’t need insurance at all. If you don’t, then you’ll need to buy life insurance.

Your insurance needs are generally highest when you are just starting out with your career and family. Typically insurance needs gradually taper off as debt is paid down and assets are accumulated.

(While there are some specific reasons for holding life insurance throughout your entire lifetime (eg. business succession, transferring cottage assets to family members, dependents with special needs), these insurance needs are less common, more specialized and will definitely require individualized professional advice.)

Too little insurance:
Typically younger people don’t have enough insurance, and often it is the wrong kind.  Usually we need a lot more insurance at the beginning of our careers, when children are young and especially if one parent stays at home. Term insurance generally works best here – it’s cheap and exactly suited to this type of need. However, with little understanding of insurance and the ever increasing complexity of insurance options, many younger people are talked into universal life policies that don’t match the reality of their lifelong needs. These insurance policies are also touted as savings vehicles, but as far as I’m concerned, they are unnecessary, expensive and too complicated for the average family.

Too much insurance:
What I’m seeing lately are many people in their 50’s or 60’s who put their insurance plans into place early on, but haven’t recently updated them. Since their last insurance review, their debts are much lower or paid off entirely, savings and investments have increased and, with kids now out on their own, household expenses are substantially lower. With these life changes, there may be little or no need for continuing to pay insurance premiums.

So, if the kids are relatively self-sufficient, if one income is now enough to live on, or if you have accumulated enough assets, then it’s time to revisit your insurance policies.  Remember that term insurance premiums increase with age, so you may be getting the double whammy of paying more for coverage you don’t actually need anymore. I just went through this analysis with some clients and it saved them over $4,000 a year!

Just the right amount:
Take a few minutes to review your insurance coverage. Be realistic about your current circumstances and needs and your future requirements. (And don’t be pressured by those darned “bears” into paying for more insurance than you really need.) Determine exactly what the correct balance is for you and your family at this specific stage of your life. After all, it needs to be “just right”! – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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How Much Cash Should you Hold?

Risk averse Canadians are sitting on an “astoundingly massive” $1 trillion or more in cash, or near cash holdings, according to a recent study by Scotia Capital Inc. While we might pride ourselves on being prudent savers, some experts are warning that our rainy day funds are now so large that they could jeopardize the country’s economic recovery. They also fear that you are not getting a good return on cash holdings. So what is right for you?

It is certainly true that cash investments aren’t very exciting these days. Rates of return for so called “high” interest savings accounts run at around 1.5% or less, and 5 year GICs are only returning 3%. And of course, over the long run, cash investments haven’t done as well as bonds or stock investments. But still, I like cash – a lot.

There’s much more to investment planning than just getting the best rate of return. Sure inflation is an important consideration. So, too, is outliving our money. So is having enough money to meet future expenses and goals. BUT – if our investments are ultimately designed to help us enjoy our life, then we need to consider the emotional as well as “dollars and cents” implications of financial security. Being stressed about money doesn’t make for good investment decisions or a happy life.

As a financial educator, I know firsthand the value to clients of being more educated about how money and investments work – greater understanding of money usually leads to better financial decisions and less worry. But I also know that graphs, charts, and financial calculations can only go so far to relieve the anxiety caused by market fluctuations.

So what do these concerns mean to your portfolio?

Let’s start with a simple and obvious fact. We’re human. Sometimes we make irrational decisions based on emotions – sometimes fear, sometimes greed, sometimes wishful thinking. Even though we “know” we should keep our emotions from dictating our investment decisions, it is unlikely that our species is going to change this type of instinctual behavior anytime soon.

So you need to make investment decisions that suit all of your needs — including the very human need and desire for security. This means that cash investments should always be an integral part of your portfolio. The amount of cash you should hold is largely dependent on two factors. First is your tolerance for risk. Second are your cash needs for the near future.

So for instance, if you don’t want to take any market risk at all, then your choices are pretty much limited to a 100% cash or government bond portfolio. (If you take this strategy, you should run the precise numbers to be sure that you’ll have enough to cover your long term needs after tax and after inflation.)

And even if you can accept a high level of risk in your overall portfolio, but need to use some of your funds in the next 2-3 years, your best bet is to hold the total amount you will need in cash or near-cash investments.

How does this work?

Let’s say you want to buy a house in 2 years but first have to save for the down payment. Your existing savings and new money should be held in cash investments so you can be sure that the money is there when you need it – regardless of what happens in the markets.

Or if you’re at retirement age and you need $3,000 a month ($36,000 annually) to fund your lifestyle, then keep a reserve of about $100,000 in cash to fund the next three years. This will give you the emotional upside of knowing that you have cash in the bank and you will be financially ok for the next few years.

By holding cash for your 2-3 year short term needs, you will be more comfortable with your other higher risk investments that you need for growth. Then even when the markets fluctuate wildly, it will be easier for you to resist the temptation to react emotionally because you know that some of your portfolio is protected. Not an exciting strategy but a good night’s sleep sure make sense to me.  – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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Post Recession Check-in – Are you keeping up with the Jones?

The much hyped “Great Recession” seems to have lost much of its steam with more and more prognosticators announcing its end, or, at least, its imminent demise. The debate amongst economists and politicians will likely go on for some time about how bad it really was, but chances are some new flu epidemic, or other news event will soon capture the headlines and the recession will soon fade from our collective memory. But should it?

The big question is whether or not we learned anything from the past year. Remember the fear, the doubts, the insecurities?  Were the promises to save more, spend and invest more prudently, plan better, get out of debt, all a waste of time?  Do we now blithely go about our business with a continuing binge of unsustainable spending and indebtedness that impoverishes us both financially and spiritually?

I recently came across a report from the Vanier Institute of the Family called, The Current State of Canadian Family Finances, by Roger Sauve that reinforced my concern that the average Canadian is not out of the woods with more pain to come.

Here’s where “the Jones” are at:

Net worth:

  • The average household net worth is now $393,000 –up from $240K in 1990
  • This increase is largely due to real estate growth

Income and Spending:

  • The Good News: Average income is $65,000 — up 11.6% since 1990
  • The Bad News – Spending increased twice as fast (up 24%)
  • More bad news: Debt increased more than 6 times faster than income (up 71%)

Savings:

  • We save 3% of our disposable income in Canada. (This compares to 1% in the USA, and 10%+ in France, Germany & Australia.)
  • Only 27% of Canadian tax filers contribute to RSPs in 2008

Debt:

  • Average household debt is $90,000
  • The ratio of consumer and mortgage debt to disposable income is at 127%. This is just marginally lower than the USA (and exactly the same as in the USA in 2006 just before the US housing bubble burst)
  • About 50% of people with incomes between $30,000-$80,000 struggle to keep debt under control
  • Insolvencies are expect to be around $120,000+ in 2009 — almost 3 times the number in 1990
  • The number of insolvencies in the 55+ age group are climbing fast than in other age brackets
  • The #1 reason for insolvencies in the over 55 group? Overextension of credit

Credit cards:

  • There are more than 64 million Visa and MasterCards in circulation. Canadians hold an average of 2.6 cards each
  • The number of credit cards transactions increased by 60% from 2002-2007, with debit card usage only going up 15%, and cheque writing declining by 15%.

Tough news is never what we want to hear.  As Canadians we really need to take a hard look at how we spend, save and use debt.  And despite what we might like to believe, we’re not much better than the US when it comes to savings and debt.

Guess these days keeping up with our neighbours isn’t so great after all. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

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