As a collection agency with offices in Edmonton, Calgary and the GTA we are watching with keen interest the unfolding of this phenomenon and their impact (or lack thereof) on Canadian credit markets.
In this age of relentless consumption and 140 character tweets, what kind of insult to common sense argues that human nature is prone to save too much, defer gratification too long, shop too sparingly and consume too little?
But isn’t that ultimately the message that is being sent by Central Bankers from around the world with a near zero interest rate policy, or in the case of Japan, Denmark, Sweden or Switzerland negative interest rate policy? Yes, we said a negative interest rate policy. For example, in Denmark should you choose to invest $1000.00 in a certificate of deposit for one year yielding (-0.65%) you can look forward to being rewarded for your thrift by having $993.50 returned to you by your bank for the appreciation of allowing them the pleasure of holding your money for the past year.
But hang on you say, that’s Europe everyone knows they’re a financial basket case. We don’t have to concern ourselves with such insanity in Canada. Yes, I guess you’re right we’re doing well in Canada aren’t we?
Let’s take a look at our retired friend Bob here in Canada to illustrate the point.
Bob is 71 years old. After working a lifetime of thrift and frugality and making some shrewd investments along the way he’s managed to do a lot better than most middle class working guys (not blessed with a public services pension to fall back on) in amassing a $500,000 nest egg in his RRSP account. As financial analysts have always said take risks when your young, but seek to convert more risky assets like stocks into bonds or GIC’s when you are older in order to provide yourself with a stable risk-free retirement income. Bob did everything right, he denied himself toys and other forms of instant gratification earlier in life in order to provide him and his wife a decent income above and any beyond his monthly CPP. He took some risks with his portfolio and when it came time, converted his RRSP into a RRIF, investing his $500,000 into 2 year GIC’s currently averaging a 1.35% return.
Check out the Loans & Savings Rates Tables courtesy of the Financial Post
After a lifetime of working and prudently saving Bob and his wife can be found sleeping well in not having to worry about market risk like they did when they were younger, and enjoying their retirement. The $18.49 in daily income their $500,000 retirement nest egg now affords them the luxury of visiting the neighborhood Second Cup every morning to enjoy two large Cappuccino’s and the sharing of a bran muffin, with a little change left over to buy the newspaper.
You’ve done well Bob.
Nothing to worry about here. Things are good.