TORONTO – As the United States government comes to grips with its balance sheet this week, a new survey released Aug. 4 by BMO Bank of Montreal shows Canadian households need to put a fallback plan in place to ensure they are prepared in the event of a financial crisis at home.
In fact, the numbers revealed that when it comes to savings, putting aside money for a “rainy day” can be a challenge for many Canadians.
The survey, conducted by Leger Marketing, measured how financially prepared Canadians are for an emergency, and the main barriers keeping them from saving. The results showed:
– more than 40 per cent of Canadians are not prepared, or unsure they are able, to handle their financial obligations in the event of an emergency;
– one quarter (26 per cent) have less than three months worth of emergency savings;
– Only three in ten have enough savings set aside for one year or more;
– Debt and everyday expenses are the main factors keeping Canadians from saving.
“Learning to put aside savings for a rainy day is important, so that if a significant problem arises you are able to handle your finances without taking on more debt in the process,” said Lynne Kilpatrick, senior vice-president of BMO Bank of Montreal. “A general rule of thumb is to have an emergency fund set aside that is equal to three to six months of your income to use for unexpected household expenses.”
Kilpatrick noted that Canadians should be mindful of their spending habits and to make use of the high-interest savings vehicles to help them save for a rainy day.
For instance, that bank offers smart saver account, a high interest savings account that allows for unlimited deposits and transfers into the account, one free self-serve debit transfer each month via online, bank machine or phone, and free access to an online personal financial management tool to help track everyday expenses.
The survey also identified two main barriers that are preventing Canadians from saving: debt, including credit card and mortgage debt (47 per cent), and everyday expenses (41 per cent).
For those carrying a monthly credit card balance, Kilpatrick recommends they consider consolidating their debt load by using a line of credit with a lower interest rate, or transferring to a low rate credit card. Some cards offer a low rate of 11.9 per cent for an annual fee of $20 per year. The potential savings in interest charges over the long term, can be put towards other financial goals, such as the purchase of a home or retirement.
Some Canadians are saving for that rainy day. Here is what they are doing according to the survey:
– of respondents who indicated that they were saving, nearly half (46 per cent) of Canadians hold their savings in investments, such as guaranteed investment certificates (GICs), mutual funds and exchange traded funds (ETFs);
– One in three (34 per cent) use tax free savings accounts (TFSAs) for their savings.
– 15 per cent of Canadians are currently using high-interest savings accounts as a rainy day fund.
The Leger Marketing survey was completed on-line from July 4 to 7, with a sample of 1,504 Canadians, 18 years of age or older. A probability sample of the same size would yield a margin of error of plus or minus 2.5 per cent, 19 times out of 20.
