A. Farber & Partners

Where have all the full-time jobs gone? And what does it mean for our economy?

Statistics Canada released its employment figures for July today and the news wasn’t good.  Approximately 139,000 full-time jobs disappeared (including the slashing of jobs in the education, finance, insurance, real estate and leasing categories).  Granted, 130,000 part-time jobs were added during this same time period.  But we all know you cannot equate part-time jobs with full-time employment.  Many of those part-time jobs are most certainly student-held positions that will, come September, vanish again.

And many part-time workers who are not students need to hold down two or more part-time jobs just to equal the income levels they would earn if they had only one full-time job. Not to mention  the emotional stress such work-loads place on many households across the country.

So are we turning into a nation of part-time jobs and contract positions?   Only time will tell but it sure looks like the full-time job (complete with health and wage benefits and other perks) is quickly becoming a rarity in Canada, as it has in the United States.

And with our labour market shrinking as well (due to older workers retiring and not enough younger workers entering the work force), our ability to compete in world markets could be affected.  Already we’ve seen a slight increase in interest rates by the Bank of Canada, and a drop in the value of our dollar against the American greenback.   According to Bank of Canada Governor Mark Carney, our annual growth rate slowed from the 6.1-percent rate during the first three months of 2010 to an anemic 2.8-percent pace in the current quarter.

All of this means less money coming into Canadian households, more corporate failures and more financial uncertainty, after two years of an already-fragile global economy.

Once again I urge everyone to pay down their credit card and loan debts and try to put some savings away in a TFSA or RRSP as an emergency back-up for any potential job loss or household income drop.

Times continue to be tough and there is not necessarily a simple solution to our economic uncertainty this year… and possibly next year as well.

The Revolving Door of Mismanaged Debt

Open your mailbox on any given day and you may find a credit card application inside that tempts you with its offer of low monthly interest.  Turn on your television, visit a movie theatre or listen to your car stereo and you’re similarly bombarded by hundreds of advertisements for a myriad of “must have” products.   We’re buying more iPods, big-screen TV sets and other products than we ever have before.  The result?  Massive consumer debt.

How bad is the problem?  The Bank of Canada estimates that Canadian consumers now owe more than three quarters of a billion dollars to their creditors.  This means we are racking up personal debt (including personal lines of credit, bank loans and credit cards) at an unprecedented rate.

Some of this new debt is being generated by people who have been discharged from a bankruptcy or proposal proceeding.  In other words, people who have had to go through the process of filing for protection from their creditors, completed the process and now, free to rely on credit again, have waded right back into the swiftly-flowing river of debt.

Worse yet, this renewed debt usage is often at the enthusiastic urging of highly-competitive banks and department stores.  Caught up in their spending, these previously-insolvent debtors forget far too quickly the stress and burden of taking on too much credit.  And just like before, they eventually reach the point where they have much debt and no way to pay it down.

Canadians used to be savers. Back in 1985, the average Canadian socked away close to sixteen per cent of his take-home pay. A decade later, the savings rate had slipped to a little more than nine per cent of our after-tax income. By 2003, the average Canadian saved just 1.4 per cent of his pay.

It’s become painfully obvious that the average Canadian has limited understanding with respect to the correct and proper use of credit.  This lack of education has resulted in increased consumer financial failures and a reliance on the Bankruptcy and Insolvency system to provide a fresh start – often more than once.   And as bankruptcy has become less of a social stigma, repeated use of insolvency to resolve consumer financial distress has become more commonplace.

The answer to this problem may be early education.  We need to educate kids long before bad spending habits are formed.  At this time, the education system does not teach most middle and high school students about personal financial issues, such as the benefits and risks of credit or personal budgeting.  Should this not be a major priority for our educational systems to tackle?

Luckily, many of the materials our educational institutions would need to launch such a program in their schools are already available from the Office of the Superintendent of Bankruptcy.  The OSB has created a range of education aides (available on their website) to assist in the education of children aged five through 15, as well as a detailed guide for young adults attending and completing post-secondary institutions.  These materials could be made available as either mandatory or elective units in the public school system to assist in the prevention of financial difficulties

Isn’t it about time we put the brakes on out-of-control spending habits and encouraged consumers to be not only better educated about their debt but more responsible for it as well?

“Don’t Put All of Your Eggs In One Basket”

The concept of spreading around your savings and diversifying, comes from an old adage that most of us probably grew up hearing our parents say:  “Don’t put all of your eggs in one basket.”    Basically it’s a simple financial strategy:  Divide up your savings into at least  three very different  types of investments:

Extremely Conservative  (and easily accessible in an emergency) could be a TFSA or savings account at your favourite financial institution (online or brick and mortar).  Mid-Range Risk could be a RRSP or mutual fund account (self-directed or handled by the institution you invest with – terrific for planning your retirement) and Higher Risk could be the stock market, DRIP investments (buy one share of stock then have all dividends from that stock reinvested with the company that issues the stock thereby ensuring a continuous small stream of income down the road) or something else that might be a bit less of a “sure thing.”

In this volatile and highly-unpredictable economy that we’re enduring (and will most-probably continue to endure for several more years) it’s essential that you have a mix of investments and cash reserves you can count on to carry you through the bad times and well into your retirement years.

By diversifying, and juggling multiple financial “egg baskets” you will discover over time that even when one type of investment isn’t performing as well as you would have hoped, another might be going gangbusters and really helping increase your overall portfolio.

The bottom line is this:  Spend less and save more.  Canadians used to be huge savers (we had more savings accounts and funds in safe havens like Canada Savings Bonds than any other types of investments) and we need to get back to that frugal approach in order for us all to weather the dips in the economy that we know will face us in the future.  “A saver not a spender be” is another old adage that hammers home that philosophy.

CIBC Acquisition Could Mean Fewer Choices For Canadians

Today’s Financial Post article on Canadian Imperial Bank of Commerce’s acquisition of a $2.1-billion credit card portfolio from Citigroup’s Canadian Mastercard business will firmly intrench the CIBC as the largest issuer of credit cards in the country.

Why is that newsworthy?  By acquiring Citigroup’s Mastercard business, as well as two other recent acquisitions of CIT cards and a minority stake in Bermuda-based bank N.T. Butterfield & Son Ltd, CIBC has effectively reduced the competitive field in Canada by gobbling up the competition.  That could mean fewer choices for those anxious to acquire new credit after a discharge from insolvency.  It could also mean fewer choices, fewer options and fewer deals for Canadian consumers as CIBC amasses more control over the credit card marketplace in our country.

CIBC cites the acquisition as being directly aligned with its “strategy to grow our core Canadian operations and further strengthen our highly successful credit card business.”   This according to Gerry McCaughney, CIBC’s chief executive officer.

Fewer choices in an already tight lending economy = fewer options for those struggling with debt or, after insolvency, attempting to rebuild credit.   And with more and more American firms considering a pull-out from the Canadian marketplace (as Wells Fargo did last week with its lending and mortgage businesses), consumers in Canada will need to do even more homework to locate the right credit products for their needs.

Is it possible? Are Canadians STILL not saving for retirement?

I was somewhat surprised to see a piece in Thursday’s Toronto Sun, written by Sharon Singleton, about Canadians and their retirement savings.  Or,  in this case, the lack thereof.

Apparently, according to a poll conducted by the BMO Retirement Institute, only 40% of the respondents actually have any funds put aside for retirement.   Despite the fact that the more than 2,000 Canadians polled were aged 35 years of age, or older.

What I found even more frightening about this poll’s results was the attitude of the respondents.  More than 8 out of 10 of them said they were more concerned with satisfying “current needs” rather than stuffing away money for their retirement.   That means relishing the immediate reward of a shiny gadget (like the best-selling iPad or iPhone 4), a sun-filled vacation destination to the Caribbean or Florida, or a sleek new automobile rather than the safety of a RRSP, TFSA or conservative investment like a GIC.

Of course, 90% of the respondents to BMO’s survey knew what they SHOULD be doing (i.e. salting away  that money for an eventual retirement)  but instead they were racking up credit card debt and getting deeper into a dangerous debt cycle rather than saving their money (or even paying down debt they had already accrued).

Are you one of the folks who prefers to “live for today” rather than plan for tomorrow?  I can’t help but think of the fable “The Grasshopper and the Ants” whenever I read reports like the one BMO has compiled.  That image of the Grasshopper lazily relaxing while those industrious Ants prepare for the winter is a chilling compliment to these types of statistics.

Better to be more like the Ants and less like the Grasshopper, folks.   Retirement will be upon us before we know it and those without a financial safety net could be in a very rude awakening.