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Fewer of Us Living Paycheque to Paycheque, Still not Enough

7 September 2012

This morning we talked about how our consumer spending has gotten so high that we simply can’t afford to do too much more of it. If we don’t continue spending, Moody’s says that we have a 20 per cent chance of falling into another recession.

But it’s a very delicate balance between sufficient consumer spending, and an overexposure to consumer debt. And right now, Canadians are walking a very fine line.

A recent survey was conducted by the Canadian Payroll Association, and the results are shown in the chart below. They clearly show that while fewer Canadians may be living paycheque to paycheque, it’s still not enough and we need to stem our spending.

As you can see from these results:

  • 47% of Canadians would be in trouble if their pay was held up by even a week. This is down from the 57% that said the same last year.
  • More than 40% said that they’d need to work longer than they had intended. Most said that they’d need to remain in the workforce for about 5 years longer.
  • Only 34%, compared to 42% in 2011, think that $1 million is enough to retire. 38% of respondents in 2012, compared with only 27% last year, said that they would need more than $1 million to retire.

Caroline Bernard, chairman of the Payroll Association, says that the problem is simple. We’re overspending, and we can’t afford to. When you’re living from cheque to cheque, there’s not a whole lot of wiggle room for extra saving.

“People need to save more,” says Ms. Bernard. “They need to start earlier, and they need to do it every pay. You can’t save what you don’t have.”

Jeffrey Schwartz, executive director of the Consolidated Credit Counseling Services of Canada agrees, saying,

“I think the bigger shock illustrated in this survey is that people aren’t saving.”

He points to the fact that while Canadians continue to go into debt thanks to the low interest rate, it’s going to catch up to them at some point. And that for the nearly half of us that are living cheque to cheque, if our finances were to be suddenly shaken, such as with loss of an income, we’d be in over our heads – especially if we’ve sunken ourselves deep into debt.

“If interest rates increase a little bit, people aren’t going to be too fazed by that,” he says. “But half of Canadians are going to be in trouble if they lose one paycheque. If you don’t have income, you can’t service your debts.”

This is no doubt true. And it’s a situation that no one wants to find themselves in; which is why Mr. Schwartz recommends having at least 3 – 6 months of living expenses saved at all times.

But is this really all that bad? After all, there are 10% fewer of us that are living cheque to cheque when compared with last year, and that’s definitely a step in the right direction. And let’s not forget the fact that some of us have to keep spending in order to keep the economy up.

So does this survey really spell the doom and gloom that two of Canada’s experts seem to think? Or should we, despite the fact that we’re Canadian and therefore not really ones to toot our own horn, just give a collective pat on the back to those who helped bring our percentage down from last year? Let us know what you think. Like us on Facebook and get in on this conversation, and all the other financial chatter that’s going around!

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