Monday, January 15, 2007

Unbelievable stat of the day

Food for thought comes, this Monday morning, in the form of an interesting Jim Stanford column in the Globe and Mail.

This being RRSP season, Canada's major financial institutions are ramping up their campaigns to make us all feel like we're going to die penniless and alone unless we collectively buy XYZ hot new sector-based mutual fund. But Stanford urges us to see through the hype and take any expendable cash we have this time of year and put it into an investment we can truly enjoy for years to come -- the family homestead.

We've all seen the Stats Canada surveys showing how many billions of dollars in unused RRSP contribution room Canadians allow to languish every year ($400-billion since 1991, at last count) and we've all seen the breathless press releases from CMHC, telling us how healthy the housing market is, with a seemingly endless supply of willing new buyers in almost every region.

The numbers back those observations up, and that's no coincidence, Stanford writes. As a whole, we're consistently eschewing the stock market in favour of buying, or upgrading, our own homes. Stanford offers what was, to me, and amazing statistic:

More Canadians own their own home than hold even a dollar's worth of RRSPs.

In and of itself, that's an amazing factoid. But what's really telling about this, to me, is how skewed the numbers are when you drill down a little. The average RRSP is worth $30,000, Statcan says. But since so many people don't have one, in reality, there's a lot of people on either extreme. So if you have an RRSP, chances are it's either fairly small, or impressively large. Put another way, out of ten people, chances are one person has an RRSP worth $300,000 while the other nine have none. Presumably these are the same 62% of Canadians who own their own home. I hope so, for their sake.

Stanford embraces the new trend, essentially saying the best thing people can do for their own financial health is to own their own home and work for well-funded public and workplace pensions. I'm not sure if I agree with that sentiment -- but certainly an interesting perspective on the issue.


NFtoBC said...

While Jim's comments are interesting, remember that he is a member of the Canadian Auto Workers, and as such would suggest that an employer supported pension plan would be valuable for all. I, too share his advantage. I contribute about 8.5% of my salary to a defined benefit plan, and my employer pays about 9.5% of my salary. I also have about 1.5 times the median in my RRSP. I have to watch my RRSP contributions, as taxes paid may be higher on withdrawl than on deposit. I currently will only invest in an unsheltered investment because of this.

I disagree with Jim that your house is an investment that should cause you to avoid investing in the market. Unless you are prepared to move to somewhere cheaper (not always possible) you have no way to exercise your investment return.

My advantage, is the paternalistic action of my employers, or rather my union, who forced me to join a pension plan on my first day of work, and have extracted a payment with each paycheque ever since. Without this, I, like many, would likely be scrambling, or worried, about my retirement, as I likely would not have made enough contributions early to have my RRSP equal my pension value.

Finally, it might be interesting to compare the number who are like Jim, who have a comfortable employer pension plan, no RRSP and own their home.

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