And I was “irresponsible” and “misinformed” how?
By Jason Kirby - Friday, September 30, 2011 - 10 Comments
In attacking my recent story What’s the Use of Saving Money? as “irresponsible” and “misinformed,” I’m not entirely sure Peter Aceto, the CEO of ING Direct Canada, read beyond the headline. If he did, he’d know it wasn’t a piece that “discourages Canadians from using savings accounts.” Quite the opposite. While bemoaning and exploring the demise of the saving culture in this country, our story argued that around the world people are being discouraged from putting away their pennies by ultra-low interest rates and government programs that promote spending (Cash for clunkers, home reno rebates etc).
I won’t go over the content of the original story. I’m confident readers understood it simply aimed to give a voice to the frugal few and their frustration that low rates subsidize borrowers while hurting savers.
The main thrust of Mr. Aceto’s indignant letter is that Canadians who don’t want to buy a house or invest in the stock market have a choice—they can open an ING Direct savings account. It’s true that until ING came along, there were few options for Canadians to earn decent guaranteed rate on their deposits. ING popularized at least the idea of saving with that Dutch bloke and his accented “Save your money” catchphrase. ING pays 1.5 per cent with its standard high-interest savings account. Ally Financial, which in a past life was the financing arm of General Motors until a bailout came and washed away all its problems, offers 2 percent to its clients. (You can earn more with both if you put the money into longer-term GICs.—five-year GICs pay 2.5 per cent at ING and 2.75 per cent at Ally.)
That’s great, but in the year since ING raised its savings rate from 1.3 per cent to 1.5 per cent, there have been seven months where year-over-year increases in the Bank of Canada’s core consumer price index exceeded that rate. The core rate also excludes eight of the most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies). Excluding those items helps the Bank better determine the long term trend of inflation, but they’re still products Canadians buy and must pay more for. Much more in some cases. According to Statistics Canada, in August food prices were up 4.4 per cent.
Contrary to what Mr. Aceto claims, I didn’t say Canadians should be investing rather than saving. I made no suggestions whatsoever for what Canadians should do with their money, because there is no easy answer. The housing market looks like it’s in a bubble, the stock market is terrifyingly volatile, and savings accounts are not keeping pace with inflation. That’s just the sad reality for savers today. And it’s why many more savers are likely to throw up their hands and ask “What’s the point?” For the record, and for Mr. Aceto, I believe that’s a bad thing.
Here are some more thoughts on the topic from south of the border. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, is retiring tomorrow and takes a parting shot at ultra-low interest rates:
“What you do when you artificially hold rates down is ask the savers to subsidize the debtors. In an emergency and a crisis that is justifiable, perhaps,” he said.
But to do it repeatedly and indefinitely risks distortions in the market and creating unintended consequences and eventually inflation, he warns.
“It would be better if we were not as accommodative so the market could function and send out proper signals,” Hoenig said. “I think interest rates would be low. I just don’t know how low.”
Before I finish I want to also take an opportunity to thank Garth Turner, the former MP and financial commentator for his help rustling up folks for us to talk to for our original story. After I asked Garth if he knew anyone who felt like a chump for being prudent in the face of all the incentives to borrow and spend, he put out the call on his popular www.greaterfool.ca site and sent me dozens of emails from people who responded to his message. The request clearly hit a nerve.
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What’s the use of saving money?
By Jason Kirby and Chris Sorensen - Tuesday, September 27, 2011 at 9:30 AM - 38 Comments
How years of ultra-low interest rates have punished savers, rewarded spenders, and now might be smothering any hopes of recovery
Getty Images; Photo Illustration by Taylor Shute
Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.
That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover—particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”
Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history. For that matter, over the last 10-year period, following the 9/11 terrorist attacks, the Bank of Canada’s benchmark interest rate stayed above four per cent for just six quarters (in 2006 and 2007), while the average headline rate of inflation over that time was 2.1 per cent.
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How to get groceries for (almost) free
By Julia Mckinnell - Wednesday, March 16, 2011 at 9:00 AM - 37 Comments
Coupon clipping is time-consuming, but the savings deliver ‘an exhilarating high’
Getty Images; Istock; Photo Illustration By Bradley Reinhardt
Yes, it is possible to cut your grocery bill to pennies, according to a stay-at-home mom from Boston. In Kathy Spencer’s step-by-step guide, How to Shop for Free: Shopping Secrets for Smart Women Who Love to Get Something For Nothing, she outlines how to whittle a $384 grocery bill down to $5, using a combination of manufacturers’ coupons and in-store promotions.
“I strongly suggest getting over any lingering coupon phobias,” Spencer advises bargain hunters. “I want you to think of those little squares of paper with the bar codes on them as cash. Personally, I can’t look at them any other way because using them has saved me, on average, over $60,000 a year.”
On the downside, shopping for free takes time. “I set aside several hours a week to collect online coupons, scan circulars and hit the stores. To me, this is time well spent considering, on average, I spend $20 a month on groceries. That’s right – twenty bucks. I bet that’s less than you paid for your last manicure.”
The weekend edition of your local newspaper is a good place to start looking for coupons. “They’re in that bundle of glossy inserts jammed in the middle of the paper. That’s your cash allowance for the week, so don’t throw it away.” In addition, Spencer tells readers to start visiting gas stations and convenience stores late on Sunday night or early Monday morning. “Most stores will let you remove the coupon insert from any unsold Sunday newspapers before they’re picked up on Monday morning and returned to the distributor.” Coupons can also be printed from websites such as Coupons.com.
Once you’re grocery shopping, look for “peelies”—coupons attached to items. “Don’t be fooled,” she writes. “You don’t need to buy the product to get the peelie.” Also, “look for tear pads, pads of manufacturer coupons within the stores.”
One time, Spencer used PetSmart coupons to score 40 bags of dog food for nothing. “Shoppers, that’s a $500 value. Since getting Harry, our yellow Labrador retriever, nearly four years ago, I’ve only bought dog food once—and he eats the good stuff.”
The key to these kinds of savings is to use store coupons along with manufacturers’ coupons. “Combining coupons, or stacking, can be an exhilarating high, and once you get the hang of it, you’re likely to feel like you’re on a winning streak at the blackjack table.”
Although many people believe coupons are mainly for processed junk food, Spencer says this is a myth. “I can’t tell you how often I’ve been greeted in public with something like, ‘You’re Kathy? I thought you’d be heavier and more grandmotherly.’ Translation: fat and nearly dead,” she writes. “News flash: not all deals apply to junk food or crap. I regularly have rows and rows of Healthy Choice soup cans lining my shelves and countless organic food items in my refrigerator.”
To get coupons for organic products, it’s best to go directly to your favourite brand or product website, she writes. Also, Whole Foods puts out a monthly newsletter with “high-value printable coupons.”For beginner savers, start slow, she advises. Head to the store with a notepad and pen, “scan the aisle for things priced under one or two bucks and write down these things.” Next, “go home and try to find coupons for these items from your coupon stash that will make those items free.”
Once you’ve mastered saving 20 per cent off your total grocery bill, Spencer writes, “aim lower. If you saved 20 per cent in January, challenge yourself to save 30 per cent in February. My personal grocery goal is [to spend] four bucks a week, $16 a month.”
Spencer, who has four kids, explains, “We live in a 2,800-sq.-foot colonial-style home on nearly three acres of land. We drive vehicles we paid for in cash. Our oldest is in college, and we have no credit-card debt. My husband works for the city making $45,000 a year. And yet to take a walk through our house, and sit down at our dinner table, you’d never know that, on paper, we’re considered low income. We live a life of abundance because I’ve discovered the secret to shopping for free.”
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A savings safety net
By Peter Shawn Taylor, Jullia Belluz - Thursday, November 18, 2010 at 12:40 PM - 11 Comments
Doubling Canada Pension Plan benefits would provide all Canadians with a safe retirement, but it’s a risky plan that is set to spark a major political battle
Hernandez has put 15 years' worth of savings into his new Toronto restaurant. Most people aim for a retirement income of 60 per cent of their working-life income. | Jessica Darmanin / Pawel Dwulit/GetStock
Carlπos Hernandez understands the restaurant business. The retirement business, on the other hand, is a bit of a mystery.
After a career spent working in other people’s kitchens, Hernandez, a native of El Salvador, is on the verge of opening his own restaurant. Inigo, in downtown Toronto, will offer takeout Portuguese churrasqueira-inspired fare—oven-roasted chicken, salads and brown rice. At 48, Hernandez felt it was time he became his own boss. So he’s sunk 15 years of savings into his venture.
While most financial advisers would argue against putting a lifetime of savings into a single, risky asset, the chef figures he knows his way around a kitchen counter much better than a stock portfolio. If the restaurant flops, however, he’ll be left with nothing.
“This is a gamble,” Hernandez admits of his foray into the notoriously fickle restaurant industry. “But it’s all I know. I’m not thinking in terms of a retirement plan.”
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Awash in a sea of debt
By Jason Kirby - Tuesday, February 2, 2010 at 9:00 AM - 46 Comments
Oblivious to the risks, Canadians are piling on record debt loads
Room 32 of the B.C. Supreme Court in Vancouver is where dreams of owning a home go to die. It’s the main foreclosure court in the Lower Mainland, where banks and other lenders ultimately turn when homeowners can’t keep up with their mortgage payments. The homes get seized, then sold off. “There are many tears on that carpet,” says Andrew Bury, a partner at Gowlings and the top foreclosure lawyer in the city. But lately the cramped courtroom has come to represent something else entirely—the utter insanity of Canada’s red hot housing market.
Last week Bury was in court to seek approval for the sale of a one-storey foreclosed home in central Richmond for $670,000. That was already $40,000 more than the house had been valued at two months earlier. Then, as he always does, Bury asked whether any other bidders were interested in the 2,000-sq.-foot home. Ten hands shot up. What happened next left him stunned. After a secret auction, the winning couple offered a whopping $852,500. “That’s an extreme case, but it’s the kind of thing we’re seeing all the time now,” says Bury. “It’s a feeding frenzy out there.” -
Downsized dreams
By Jason Kirby - Monday, October 26, 2009 at 10:57 AM - 20 Comments
Retirement plans are being dashed by a new economic reality
Like most young men growing up in Thunder Bay, Ont., in the 1970s, or anywhere on the planet for that matter, Alex Cryderman was too focused on the next weekend to give much thought to his golden years. So, at 21, when he followed his father and brother into a job at the Abitibi paper mill, and learned that part of his paycheque would be held back to fund his pension, he was more annoyed than anything. That feeling changed over time, of course. And as the months turned into years and the years to decades, Cryderman, now 50, came to rely heavily on his pension savings for the retirement plan taking shape in his head. “I was going to be out of here in five years with a pretty good pension,” he says. “I was going to spend time on my boat, fish, travel with my wife, really live the good life like they say in the ads.”Then one morning earlier this year, Cryderman awoke to frightening news—Abitibi-Bowater had filed for bankruptcy protection. Suddenly, his pension, along with those of 8,000 other employees at the company, was at serious risk. With the stock market collapse and the company no longer paying into the pension fund, the plan has become dangerously underfunded. Now Cryderman can only wait, and regret—wait to learn how much of his retirement savings he’ll be able to salvage, and regret not putting more money away on the side over the years. “If you’d have known what was coming down the pipe, you’d have lived your life differently,” he says. “We never thought this day would ever come.” Continue…
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Econowatch
By Steve Maich - Thursday, May 28, 2009 at 9:00 AM - 3 Comments
The new normal: Call it frugality if you like. We call it sanity.
When will things go back to normal? That is the only question that seems to matter: when will this strange and frightening episode pass? It’s a fair question, but not exactly the right one. What most really mean is: when will my house price begin soaring again? How long before my stocks triple? And when will I feel safe to max out my credit cards again? Over the past 15 years that became “normal,” or at least common. But that isn’t coming back soon.The reality is, everything we see happening around us is part of the process of returning to normal. For the past decade or so the laws of financial gravity were suspended. Now they are back in force, and those who soared the highest have the furthest to fall.
