Our Declining Savings Rate

Household spending is expected to continue powering the Alberta economy through 2012.  As a matter of fact Statistics Canada just announced this past week that total New Vehicle Sales in Alberta were up over 23% in January versus one year ago!  With these gains Alberta is approaching the record setting highs that were set prior to the recession in 2009 in new vehicle sales.  This is a good thing right?  Or is it?

Canadians used to have the reputation of being savers first and spenders second but not any longer.  In the early 80’s household savings rates were averaging 15% of net income.  By the early 90’s it dropped below 10% and finally bottomed at 2.1% in 2005.  As of 2010 savings rates have rebounded slightly to 4.8%.

A decade long rise in home prices and income, in conjunction with easier access to credit and historically low interest rates sounds great, or does it?  In addition to easier access to credit some even hypothesize that the housing boom has further helped push down savings rates because many households don’t feel that that they need to save as much because the value of their homes have appreciated sufficiently to make them happy with improvements in their net worth.  This phenomenon in turn makes it easier for households to spend…because housing prices can only go up, not down, right?

We may all have a lot more neat stuff cluttering our homes and garages (for now) but are we really any happier or more content than Canadians were 30 or 35 years ago?

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