Personal Finance » Saving

5 reasons why are people not saving money?

A new survey came out by Scotia Bank suggesting that One Third of Canadians do not have a savings plan. I was asked to comment on this story on Alberta Primetime and my first response was is this really a surprise to anyone?

I was asked why Canadians might be having such a tough time saving so here is my take at the topic.

1. Financial education.

For anyone that knows me, you know that I am very vocal about the importance and need for more financial education and literacy. The statistics are alarming when it comes to debt, savings and fiscal responsibility. One of the reasons for this is the lack of formal financial education.

2. Consumption attitude.

We live in a society that loves to spend. It starts with a government that believes spending drives the economy and for the past few decades, governments have encouraged spending even if it means spending money we do not have. We live in a world of delayed consequence over delayed gratification and unfortunately we are facing those consequences today. I’m not an economist but common sense says there are huge problems in overspending in this manner. We live in a consumption society.

3. Too much debt.

The data on debts are staggering. I found this data on an economist blog so I am not sure how credible the data is but the numbers are scary:

  • Credit Card Balances up 458% in 11 years to $55 Billion
  • Residential mortgages up 242% to $965 billion
  • Personal lines of Credit up 820% to $205 Billion
  • Total household debt is over $1.5 Trillion
  • Debt to disposable income is over 155%

How can you save money when Canadians have this much debt? With these kinds of increases in debt, the amount of income that goes to service this debt has increased accordingly. The root of the problem is financial institutions figured out that debt is big business and it is extremely profitable too. Debt has become a marketed product in and of itself.

4. Complexity of the financial market.

The financial marketplace has gotten extremely complex and as a result, investors are more confused than ever. More choices has paralyzed investors from making decisions. Think about it. With over 9000 mutual funds, how can you possibly go through that many funds.

5. Rewards are not there.

Interest rates play a role in savings. The higher the interest rates, the more likely people are to save. This can be seen back in the 1980’s when savings rates were at their highest. Remember that was when interest rates were double digits 10 to 21%. It’s much more rewarding to save when interest rates are not less than 1%. Beyond interest rates, the markets and mutual funds have also not been overly generous to investors in the past decade. It’s not been the most favourable time to invest.

Should people be saving more money?

The obvious answer to this question should be yes but there may be merit in foregoing the savings and paying down debt first. It makes no sense to have money in savings earning 1% or less when you have debt costing you 5% or more. Every day you have this scenario, you are going backwards financially. Paying down debts might be the best form of savings and investing.


  1. David Sweeney

    We have a debt culture. Debt is pushed like a drug. Examples?
    -retail: don’t pay for 6 months or a year
    -banks: put the equity in your home to work for you; what they really mean is put it to work for them

    Most of us are optimistic about positive results, and pessimistic about negative results. We buy lottery tickets with a statistical chance of winning of 1 in 14 million, and think we have a decent chance of winning. How many times have I heard that “someone’s got to win”? Actually, they don’t. Often no one wins, which why jackpots often get so large. Conversely, we don’t think we’ll ever get struck by lightning, which has a statistical occurrence, depending on your geographical location of 1 in a million, which explains why people are struck and killed every year.

    So, of course I’ll be able to pay for my deferred payment purchase. In a year? Are you kidding? How could I not have the money by then?

    And of course my house will increase in value: we all know house prices aren’t going to fall.

    – shrinking middle class
    – real wages stagnant for 3 decades
    – loss of work from globalization flattening and simplifying the economic ecosystem: whole categories of work have vanished due to technology or have been outsourced overseas
    – reduction in unions, which weakens labour’s ability to demand better pay and working conditions
    – an onslaught of psychologically sophisticated advertising exhorting us to buy even more, and a lack of education to help us deal with these manipulations of our emotions

    “They” want us to save; so “they” say. I wonder what would happen if we really did save in significant numbers? Would Wall Street and Bay Street panic?

  2. Alex

    With the plethora of objective and useful information available on the internet, no one has a valid excuse for not being financially educated. No one ever told me about the value of financial education. My parents raised me in poverty and I had no financial help growing up. Worse, my parents did not know anything about “how to get ahead” so they also didn’t teach me much. I decided to take it upon myself to be a lifelong learner and among my studies I discovered the value of financial education. I dropped out of college (with a 4.0 gpa) to get a regular job that had a starting salary of just $37K in 2005. I saved diligently by living with my parents and continued to educate myself. By the time I was 24 I had made enough money from my investments and savings to buy a very nice house (worth a bit more then $500K today).

    From 24 till the present (I’m in my mid 30’s) I didn’t live like a beggar. I bought new cars, took nice international vacations with my wife, ate out, spend thousands on hobbies etc. However, I always kept a strict budget and only spent on the above after meeting my saving/investment goals. Presently, I’m worth a few million and made over $400K last year. Financial success is not an easy thing to accomplish but its a very simple process. The example I like to compare it to is weight loss. The path to an optimal weight is very simple and straightforward (provided you are not part of the minority of people with medical issues). However simple as it may be, most people are not willing to put in the lifelong hard work needed to not become obese. For this reason the majority of American’s are overweight despite knowing exactly how to keep the weight off. Financial success is literally the same thing.

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