Recession has forced Canadians to become more conservative with their money, with many preferring to invest in traditional saving accounts. Baby boomers who had gone all out investing in stocks are now turning to savings accounts after the sharp declines in the stock market erased a significant portion of their retirement investments.
The uncertain and gloomy financial outlook has compelled working Canadians to stop taking risks with their retirement savings. Another market crash and they will have to work at least a few more years to manage a good standard of living post retirement. Many are trying to pay off outstanding bills and credit card debts. The emphasis is on being as conservative as possible to deal with the current financial scenario.
Banks doing good business
Before the recession, many Canadians had found the equity market a more attractive proposition compared to banks, with many preferring to buy stock than open savings accounts. But the recession and the stock market crash have made people much more risk averse.
In 2010, Canadians opened 20% more savings accounts in comparison to last year. This is a huge increase when compared to the historical average and it translates to a business of roughly $100 billion for the banks. Banks are taking advantage of this trend and marketing attractive offers to lure customers. There is fierce competition among banks to make the most of the situation.
The opportunity size continues to remain quite big. A recent Scotiabank survey revealed that though close to 95% of the Canadian public admitted that that they felt financially secure when they had a savings safety net, more than 30% of them did not have proper savings plans and needed financial help. In another survey, 20% of respondents said that they do not have any savings at all that they could resort to if the need arises.
Good time to take home equity loans and lines of credit
The rock-bottom interest rates and positive borrowing conditions are also encouraging people to take out fresh loans. A large number of people have taken out mortgages to capitalize on the extremely low rates.
This is also a great time to take out home equity loans or to secure a line of credit. With the rates so low, you can minimize your cost of borrowing and meet some of the big expenses that you have been postponing for a long time. Whether it is renovation of your house, a new car, or any other long overdue expense, this opportunity to get a cheap loan is not likely to come again for many years.
This situation is well understood by many Canadians, which is evident from the fact that the debt-to-income ratio has risen significantly in the last year to reach 147%. This means for every one dollar income earned, Canadians now have a debt of $1.47.
Economists believe that the pace at which Canadians are borrowing will slow down once interest rates starting picking up again as the economy shows further signs of improvement. To make the most of this window of opportunity, discuss your credit needs with a financial advisor without delay.
