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The State of Canadian Family Finances – 2008

I came by an eye opening article by Vanier Institute of The Family (via The Wealthy Baker) that explains the current financial state of Canadian families (2008).

Here are some of the highlights:

Savings

We look south of the border and see the abysmal savings rates of the typical American family.  You may assume that Canadians save much more than our U.S friends, however, that is not true.  Our savings rates are almost as low as in the U.S!

Back in 1990, Canadians had a healthy savings rate of 13% compared to the U.S 7%.  However, the gap has dwindled significantly over the years where in 2008, Canadians save about 3% of their income and Americans 1%.

These recent numbers are relatively poor if you look at the savings rates from other countries:

Canada has a relatively low savings rate among industrial countries. For the latest year available, the savings rate was highest in France (12%), Russian Federation (11%), Germany (11%), Austria (10%), Italy (9%) and Belgium (8%) … all much higher than for Canadian and US households.

RRSP Contributions and Charitable Donations

In 1990, 30% of tax filers made a charitable donation.  What do you think the number was in 2007?  I would think higher, but in fact, in 2007 only 24% of all tax filers made a charitable donation.  Note though that the only donations counted in this article are the tax deductible (traceable) kind.  Volunteer work, church donations etc aren’t considered.

RRSP contributions peaked in 1997 with 30% of tax filers contributing.  In 2007, only 27% of tax filers made an RRSP contribution with an average amount of $2,800.

Debt

Household debt (including mortgage) in Canada seems to be exponentially increasing with time.  Since 1990, Canadian household debt has increased over 71% with a strong uptrend intact.  What’s more concerning is the debt to income ratio or debt service ratio (DSR).

In 2004, about 6.3% of US households had a dangerous DSR above 40% compared to 4.4% in the same situation in Canada. While this is a hopeful sign for Canada, the 4.4% still represents over 600,000 households with dangerously high DSRs. Within Canada, the percentage of households, in the lowest third in terms of income, who had a dangerously high DSR above 40% rose from 6.6% in 2004 to 7.8% in 2007. The recession will make it even more diffi cult for the less well-off

Our total debt relative to net worth is the highest in 44 years at 23%.

Net Worth

The average net worth of Canadians has been on an uptrend since 1990 (finally some good news) with most of the assets in shares, pensions and real estate.

Average Incomes

They have a nifty table with average income of families and individuals.  Here are some of them from 2006:

  • Senior Couples: $48,300
  • Couples without Children: $65,800, One Earner: $52,600  Two Earners: $73,700
  • Couples with Children: $76,400, One Earner: $54,900, Two Earners: $75,800
  • Female lone-parent: $37,000
  • Male lone-parent: $54,500

Conclusions

I always knew that the “typical” Canadian family had a lot of debt and perhaps not the most financially responsible, however, I did not realize the extent of the problem.  Some of the numbers highlighted are staggering.  If you get the chance to go through the report, what stood out for you?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 45 comments… add one }
  • Stephen Winters May 4, 2009, 8:40 am

    The line that stood out for me the most was:
    “In 2007, only 27% of tax filers made an RRSP contribution with an average amount of $2,800.”

    I was surprised at the low 27% of the tax filers contributing, however I was FLOORED at the average amount of $2,800. OUCH!

  • Melanie Samson May 4, 2009, 8:55 am

    The salary gap between men and women concerns me the most… and a lot people still think that feminism has gone too far.

  • Victor May 4, 2009, 8:57 am

    Very interesting topic. I did a BIG post on my blog about this about a year ago, and I’ll summarize it here:

    The average family debt in 2006 was around $70,920 according to this article:

    http://www.canada.com/ottawacitizen/news/story.html?id=dc622886-daff-4bde-906c-08a6da4c16dc

    ‘Cash-strapped Canadian families are racking up debt at an alarming rate and the record number of households declaring bankruptcy will continue to rise unless people tighten their belts now, a new report warns. “The alarm bells are ringing louder than ever,” says the Vanier Institute for the Family, in a report on the state of family finances in Canada released on the weekend. “They rang for governments and for many businesses and they did something about it. It is now time for families to do something about their own situations.”‘

    ‘The average household income is now about $55,000 a year, roughly the same as at the start of the decade and up only one per cent, or about $500, from 1990. In contrast, average household debt now stands at about $70,920, up 16 per cent from 2000, and 40 per cent from 1990. “On average, households are putting nothing away for a rainy day, for a bout of unemployment, or for retirement,” the report says.’

    Taxes have increased 1700% (not a typo) since 1961 according to this article:

    http://network.nationalpost.com/np/blogs/fpposted/archive/2008/04/24/average-canadian-family-pays-17-times-more-tax-than-in-1961.aspx

    I worked that out to be a 6.63% increase every year since 1961!

    ‘The average family back in 1961 earned $5,000 and paid just $1,675 in taxes. That works out to about a third of its income spent on taxes while 56.5 per cent was spent on food, clothing and shelter. Fast-forward to 2007 and the average Canadian family earned $66,496 and paid $30,213 in taxes. On a percentage basis, the average Canadian family gave 45.4 per cent of its income to governments in the form of taxes while spending 34.9 per cent of its income to provide itself with food, clothing, and shelter, with only a scant 19.7 per cent surplus.’

    ‘”Taxes have crept into virtually every aspect of Canadians’ daily lives,” said Niels Veldhuis, co-author of Tax Facts 15 and director of fiscal studies at Conservative research group the Fraser Institute. “As a result, the average Canadian family’s biggest total expense is taxation. Now, Canadians pay more of the family budget in taxes than food, clothing and shelter combined. In contrast, the cost of living has not risen nearly as fast. The average family’s expenditures on shelter only increased 1,063 per cent, food by 505 per cent and clothing by 455 per cent.’

    ‘The book examines direct and indirect or “hidden” taxes such as sales taxes, excise taxes on tobacco and alcohol, amusement taxes, and gas taxes. While most Canadians are aware that income taxes are the single largest tax they pay, Veldhuis points out that many don’t realize that income tax represents less than half of their total tax bill. Income taxes accounted for only 34.7 per cent of the taxes the average Canadian family paid in 2007.’

    After linking to those articles, I went on to recommand that my readers spend less than they earn, create an emergency fund, and pay themselves first. I guess good advice doesn’t change in a year :)

    Finally, don’t ignore your situation. It isn’t going to get better on its own. It isn’t going to just go away. The only way your financial mess will get better is if you do something about it. Better to start fixing today than tomorrow. After all, I need someone to pay for my retirement.

  • Michael James May 4, 2009, 9:57 am

    The drop in charitable contributions may be partially explained by CRA’s crackdown on bogus schemes that give people tax receipts for more than they actually contributed. A great many such schemes have been shut down.

  • zoe May 4, 2009, 10:48 am

    FYI: monetary gifts to churches *are* tax deductible – most churches are registered charities.

  • Philip in North York May 4, 2009, 11:37 am

    DSR is the biggest concern whenever I manage my parents’ account. Their DSR is whopping 54% because they own two houses -one for residence and one for rental- with two HELOCs. Unless they sell their rental property, they have to draw about $1000 from HELOC in every month. I wonder when they will sell the property to a townhouse builder.
    For myself, the DSR is 9.7%, but it will be different once I return to school and get another student loan.

  • moneygardener May 4, 2009, 11:42 am

    “Our total debt relative to net worth is the highest in 44 years at 23%.”

    Would this just be total liabilities divided by net worth? Is mortgage included?

    (ie someone has 100,000 in debt and a net worth of 100,000……..they are a 100%)

    If so on both counts, this seems extremely low to me compared with what I would expect.

    If mortgage is not included then it makes more sense to me.

  • moneygardener May 4, 2009, 11:56 am

    Also, in DSR is net or gross income used?

  • lordcresus May 4, 2009, 1:14 pm

    FYI: Just because a church is a registered charity does not mean they are approved by the CRA. They could be submitted or rejected by the CRA.

    For sure, the reason for tax filers who made a charitable donations has decline it is due to CRA major crackdown. With the improper organisation and structure that they have right now and without forgetting the threats, it is obvious that it will decline even more.

  • Caitlin May 4, 2009, 1:37 pm

    You probably hear this a lot, but I just wanted to say how awesome it is to have a great Canadian financial blog like this!

    These articles paint a sorry picture! At least I know I save more than the 3% average. I know I could do even better, though.

  • Traciatim May 4, 2009, 1:37 pm
  • Philip in North York May 4, 2009, 1:45 pm

    Moneygardener: “Debt Service Ratio (DSR) which measures the percentage of gross income spent on interest on household debt plus payments on the principal.” (page 13).

  • Daniel Wintschel May 4, 2009, 1:52 pm

    I think the thing that freaks me out the most about this is the drastic increases that are solely related to consumption (e.g. “I deserve a new car”… or “I need a 50” plasma TV”…) – and then correspondingly the huge increases in consumer debt that isn’t backed by a non-depreciating asset (like real estate).

    More and more I find myself blown away when I read about the increasing amount of credit card debt, because in my mind I find the idea of carrying credit card debt so crazy. I’ve just never carried any credit card debt, ever – so the whole thing seems totally foreign to me.

    I would probably say that a large reason for the lack of savings is directly related to this individualistic consumption-based “I deserve it” type of attitude (savings? or plasma? definitely the plasma…), along with the fact that wages definitely don’t seem to be increasing in proportion to things like housing costs (says the guy in Vancouver gagging at the fact that he spent $400K on a townhouse in the suburbs).

    As far as RRSPs go – I’ve stopped contributing to mine completely, because I don’t feel that it’s a good tax deferral vehicle (I actually just wrote a blog post about this this morning), but I’d be interested to know how many people are saving for retirement in other ways, either Universal Life as a tax deferral strategy, or even just non-registered investments. I still have to think through this a bit more myself.

  • AndrewP May 4, 2009, 2:04 pm

    re: RRSP Contributions and Charitable Donations

    One definitely CAN get tax receipts for church donations…and with the Bible exhorting Christians to give the first tenth of what they earn, the tax receipts can become quite large!!

  • Philip in North York May 4, 2009, 2:06 pm

    Another disturbing trend I found is that the asset portfolios are concentrated to few asset classes. From 1990, all of household asset increases come from life insurance, pension, real estate, and stock value appreciation.In the mean time,other assets value has decreased little bit over time. I wonder how long people will struggle to recover their wealth to the last peak time level.

  • Victor May 4, 2009, 2:31 pm

    @AndrewP – I don’t think anyone is saying that churches, or at least some churches, don’t give out tax receipts. The argument is whether or not those tax receipts would be considered valid by the CRA in the event of an audit.

    Just consider that I could go door to door asking for donations to the “Victor” fund and hand out receipts all I want, but that does not make me an approved charity (see Seinfeld).

  • Victor May 4, 2009, 2:43 pm

    @Traciatim – Something else nobody likes to say is that women statistically take about 50% more sick days than their male peers (source: http://www.sciencedaily.com/releases/2008/02/080204212846.htm). Additionally, since the average woman in Canada has about 1.5 children in her lifetime, that’s what, a year a half of paid maternity leave? Please correct that if I’m wrong about the length of leave.

    Yes, it’s biology. However, in a capitalist system companies have to make up for this somehow. If a pay difference for equal work does exist (and there is debate about that) and it approximately covers those factors, I would personally be a lot more understanding of it.

    From my own personal observations, I have seen some evidence of this pay difference, but as has been suggested this only puts more pressure on firms to hire women whenever possible to reduce costs, eventually balancing out the system.

    Flame on.

  • FT FrugalTrader May 4, 2009, 2:49 pm

    Victor, some companies (like where my wife works), do not pay maternity benefits. Mothers are expected to draw EI.

  • Daniel Wintschel May 4, 2009, 2:50 pm

    As far as the whole Church / Charity / Tax Receipt things. Almost all churches in Canada are indeed registered with the Canada Revenue Agency and are legitimate charities.

    If you have any doubt whatsoever about this, or if you need to confirm it, CRA has a searchable database for all registered charities in Canada (sadly, I know it well, because parsing their crappy downloadable file format is a pain in the neck):

    http://www.cra-arc.gc.ca/tx/chrts/menu-eng.html

    Alternatively, you can search for the same info at somewhere like Canada Helps:

    http://www.canadahelps.org/

  • InvestAssetWealth May 4, 2009, 3:06 pm

    The average American saves 1% of their income… unbelievable. At 3% we’ve got nothing to brag about either. So a large percentage of the population spends more than they make… simple math, the bubble must burst. And here we are today in quite a mess.

    InvestAssetWealth

  • Canadian Finance May 4, 2009, 3:11 pm

    Those savings rates are terrible. I save about 10% into an RRSP and I feel bad about “only” doing that. If Canadians are saving 3%, there must be quite a few at 0%

  • Bob May 4, 2009, 3:19 pm

    Melanie,

    Women typically choose different work than men and men often choose demanding or dangerous work because there is still the expectation to be the breadwinner. Woman more often have the option to work because they want to not because have to or are expected to.

    I have seen statistics that woman with equal experience and continuous employment in the same job often make more money.

  • cannon_fodder May 4, 2009, 5:01 pm

    moneygardener,

    You are correct that debt relative to net worth would be 100% in your example. I would imagine that young students fresh off graduation and still with student loans might be much higher than 100%.

    On the other hand, one would hope many retirees are at a very low percentage of debt/net worth. Considering the demographics are moving towards older ages, it seems to fly in the face of what one would expect. If older people tend to have paid off debt and have accumulated more assets, and if older people represent a larger portion of the population, then why has the debt/net worth ratio gone up?

    Is it because younger people have ingrained a philosophy of borrow to purchase almost anything? And, if so, are they borrowing at a faster rate than the older population is increasing their net worth?

  • cannon_fodder May 4, 2009, 5:05 pm

    Daniel W. / CF,

    One would think that as more companies move to defined contributions and away from defined benefits (e.g. pensions) that more Canadians would be contributing to RRSP’s not less. The existence of the TFSA is too new for any impact to be studied yet.

    Certainly I would expect that 2009 would see contributions down because of some money being put in TFSA’s and the general reluctance of people to “invest” in RRSP’s because of the stock market meltdown.

  • mojo30 May 4, 2009, 5:07 pm

    “The salary gap between men and women concerns me the most… and a lot people still think that feminism has gone too far.”

    Men make more money because there are alot of jobs out there that men do that women are not willing to (that pay well)..just the construction sector alone is huge..If you became a plumber, you’ll get paid a plumbers wage regardless of sex. But if you are not willing to do the same jobs then you wont get paid the same wage. Most women work in offices and so you are restricted in earnings, very simple. Nobody is going to pay a secratery the same wage as a heavy duty mechanic.. so that is how the averages get dragged down.

  • Sampson May 4, 2009, 6:45 pm

    I’m just curious how the readers ‘measure up’.

    I find it so hard to interpret the actual numbers (other than the trend of increased debt and reduced savings – which sorta go hand-in-hand).

    If these types of numbers are alarming, then if you took the ‘average’ Canadian and compared him/her to my family – you’d think I was about to declare bankruptcy.

  • Alexandra May 4, 2009, 8:48 pm

    FrugalTrader – thank you so much for the link. I am intensely interested in the topic of family finances…you can expect to see more from me on this topic.

    Best, Alexandra (the Wealthy Baker)

  • Mockingbird May 4, 2009, 10:15 pm

    Victor,

    Agree that the taxes have gone up dramatically since 1961, but the articles didn’t put much emphasis on the importance of CPP and Universal Health Care (both inception in 1966) that we enjoy today. Perhaps some correlation? They are not perfect in any means, but many do benefit from them and someone has to pay for them.

  • MoneyEnergy May 5, 2009, 12:25 am

    Melanie and Bob,

    I’m also concerned about statistics showing womens’ pay being less than mens’ for the same job. I’ve read several studies looking at different things, but it holds. What concerns me is arguments like Bob’s, where it is assumed that the woman “has the choice” to work or not work whereas a man does not. This is culturally determined, not inherent to anything. I wish I knew more stay-at-home dads. They also have the choice to stay at home while the mom goes to work, but it’s largely male prerogative as a large influence upon these decisions too. I cringe when I keep reading that the male breadwinner and his wife talked things over and it’s always “she” who wants to stay home with the kid and how it’s always seen as more desirable somehow that “she” does this. So I think the cultural determination hurts both ways. This is also a factor into why women earn less statistically than men and why the factors causing that number need to be improved. Big issue, can’t make too long of a comment about it here. Was just going to say that I agree with Melanie, but then I saw Bob’s comment.

  • mp May 5, 2009, 2:11 am

    Hmmm…
    According to Victor: for the average Canadian family “Taxes have increased 1700% (not a typo) since 1961”

    This corresponds to a time period where governments shifted the tax burden from corporations to individual taxation, particularly on the middle class.

    Average incomes have remained stagnant over the last 25 years. In fact, the only thing really keeping middle class families middle class over the last 25 years has been the massive entrance of women into the labour market.

    So with stagnant wages, rising inflation, and a rising tax burden as governments shifted its revenue sources from corporate taxes to taxation at the individual level, is there any surprise as to why savings rates are low and indebtedness is high?

  • Victor May 5, 2009, 2:30 am

    Regarding the “women earn less than men” debate, I believe that most of the studies in this field focus on the question of whether women earn less pay for EQUAL work (with equal experience and in the same field), NOT whether women (on average across all sectors) earn less than men (on average across all sectors).

    The latter doesn’t seem to me to be worth debating, while the former is the one that can point to areas of unfairness and discrimination. I believe this is what is causing confusion here.

  • Patrick May 5, 2009, 1:33 pm

    “Couples with Children: $76,400, One Earner: $54,900, Two Earners: $75,800”

    How does this work? Are there lots of couples with more than two earners to bring up the average?

  • Stephen May 5, 2009, 3:57 pm

    @ Patrick. I was wondering the same thing. Surprised no one else commented on that.

  • FT FrugalTrader May 5, 2009, 4:01 pm

    Good call guys, now that I look at it, it doesn’t make a lot of sense does it? Perhaps a typo?

  • cannon_fodder May 5, 2009, 4:06 pm

    Patrick/Stephen/FT,

    Could it be that there are some couples with children where the children’s incomes is also included into the family figures? That could explain why the average is higher but not that much so – because a) children’s incomes is generally not that high and b) the percentage of households where children have income which is included is also not high.

    Just a guess…

  • Ms Save Money May 5, 2009, 6:04 pm

    Interesting to compare how much Canadians save and Americans save. However, I’m not too sure on those numbers.

  • Mockingbird May 5, 2009, 6:41 pm

    Agree with cannon-fodder.
    Stat is based on the average incomes of families, specifically “Non-Senior Families of 2 Persons or More”, so it would include the total combined family income including children.

  • DAvid May 5, 2009, 11:43 pm

    “Lies, Damned lies & Statistics”

    Stats can be made to support just about any point of view, and with regard to comparison of men’s and women’s wages there are many issues that could affect earnings, even if both were on the same wage scale. On AVERAGE a woman’s annual wage might be lessened due to any of the following compared to her equivalently paid male co-worker, and while some are societal, others may be science-based.

    – Women may take more sick days. While some of this may be attributed to actual differences in health between women & men, some is undoubtedly due to child or parent care – a nurturing thing, which women seem to engage at a greater rate than men. Are women more compassionate? Probably.

    – Women, on average will lose days worked to maternity related events. They are paid the same when they work, but not while on maternity leave. Men participate in this life event differently!

    – Women are more likely to be care givers, and in my small experience, more likely to be the ones who take time away from work to help their children participate in their life-skills experiences, taking the day off to go on the field trip, etc.

    Each of these examples supports the thesis that women earn less than men, even in situations where both are on the same wage scale. The activities these individuals engage in is of considerable value to the individuals involved, family, and even society as a whole, but still provides ammunition to the statistician.

    Always question a statistic — the presenter has a reason for choosing it. And remember — half the population is below average. ( But of course, none of the readers here are in that category!)

    Stirrin’ the pot.

    DAvid

  • Dividend Growth Investor May 8, 2009, 12:02 pm

    The problem with the article FT is quoting is that it ignores the fact that more people have likely bought a house and pay mortgages on it. This could also be classfied as a “savings plan” and added to the amount of savings.

  • tt May 8, 2009, 1:58 pm

    how do asian countries and saving compare with their european and north american couterparts?

  • bob May 11, 2009, 1:31 pm

    MoneyEnergy and Melanie,

    I am the proud father of a 2 week year old boy. When I make more than my wife, the government gives whatever is less out of 55% of wages OR ~$475/week and she provides milk for him then unfortunately there is little choice of who takes leave. Besides a mother is more connect with her baby at this very young and needy age, I am doing a good job as a father but the fact is that my baby’s mother is better equipped for the task. There is also very little acceptance for a man to take paternity leave and it can be be a career killer.

    This how I see things but not necessarily how I myself act:
    As long as women choose “easier” careers they will on average earn less than men. Whether it is correct or not the fact is that society expects men to “bring home the bacon”. This is perpetuated even back to the demand of many women still that the man pay for the first few dates, this means that men take a financial risk with the uncertainty of early dating as just one example.

    Women would be better empowered to stop playing the victim. Women have come a long ways and would be better not to represent things as so dire, because they aren’t. Women have to help change societies ideals through their own actions and to encourage men.

  • Toronto Bankruptcy Trustee May 21, 2009, 12:48 pm

    It is surprising to read statistics such as “Canadian household debt has increased over 71% with a strong uptrend intact”. It is time for Canadians to take the appropriate measures and avoid accumulating further debt. Having the will power and getting the right advice is imperative. The economy has slowly started picking up momentum which is a positive indicator that Canadians are slowly taking the right steps in the right direction.

  • Meowdog June 20, 2009, 3:53 pm

    why would you save money ? thats crazy. If inflation exists which it does, your money gets more worthless every year even if the bank pays you a small percentage. It’s better to have debt in this economy. debt only costs 3% wow, and you can get renters to pay your debt Canadians are smart, the more debt the more inflation. I feel bad for people that don’t know this and get their savings wiped out. RRSP’s are a joke. by the time you retire that money will be worth 50% less in real terms. prices don’t come down, governments exclude food, gas, and other costs in their inflation reports.

  • Bankruptcy Regina July 29, 2009, 11:10 am

    The economic downturn has really been tough on the Canadian families. It is shocking to read how the the Canadian debt has increased along with personal bankruptcy filings. However, times are slowly changing. The economy getting back up and this will definitely have a positive impact on the savings and the financial state of the families.

  • Toronto Bankruptcy May 21, 2010, 11:48 pm

    The worsening state of Canadian (and American) finances is largely due declining real income for the past 20 years due to offshoring of jobs to foreign countries (primarily in Asia). Manufacturing jobs have gone to China and IT and service sector jobs have gone to India.

    It’s very simple: the growth in the cost of living exceeds the growth in real incomes, but we still feel entitled to own a car and a home – so the difference has to be financed by incurring debt.

    The problem will only get worse: just wait until all Chinese workers become fluent in English – there will be no more decent paying jobs left in North America and everyone will be taking out lines of credit just to buy groceries…

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