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speakup

Canadians are saving far too little money. I'm not talking about saving for retirement, I'm talking about savings account savings.

This is a problem because it is our savings that provides the buffer needed when the unexpected happens. Whether it's something as benign as an auto or home repair bill, or something so problematic as a temporary job loss or disability, savings are what we need to successfully make it through the tough patches.

According to the latest available Statistics Canada data, the Canadian personal savings rate has fallen below one per cent to 0.8 per cent of disposable income. That's bad. In the United States it's even lower at approximately 0.25 per cent of disposable income. This means people are having to take care of nearly every unexpected expense by drawing on some form of credit.

It seems we have become super-consumers who do not have a healthy respect for the use of debt in managing personal finances. When we have no option but to borrow to cover relatively small, unexpected expenses we are on the wrong path if financial success and independence is one of our objectives in life.

Certainly, using personal credit to make large, hard asset purchases is a well-established - and often financially reasonable - approach to managing money. Residential mortgages (with a principal and an interest portion of each payment) over as short an amortization period as one can tolerate makes home ownership achievable. Automobile loans have become a reasonable way to purchase these incredibly expensive and unbelievably rapidly depreciating pieces of hardware parked in the vast majority of North American driveways. I know they're incredibly expensive when dealers advertise weekly payment amounts rather than the purchase price in the window.

We've read a great deal about how lenders have been eager to allow their customers to get in debt beyond their means to repay in the U.S. subprime mortgage debacle. In the midst of all the criticism, though, a couple of leading North American financial institutions have stepped up efforts to help their clients save money. They've met their customers where they shop.

In the U.S., the Bank of America has introduced a program they call "Keep the Change" and in Canada Scotiabank Group has introduced a program called "Bank the Rest". While not identical, they are similar in many ways and are, I believe, a timely offering for their clients.

Here's essentially how they work: Clients can choose to have all debit card transactions rounded up to the nearest even one dollar or even five dollars. As purchases are made using their debit card, the balance up to the nearest dollar or five dollars, depending on which they selected, will be automatically transferred to the client's high interest savings account.

For example, if you chose the "round up to the nearest $5" option (which is the one I enrolled for) and in a given day you may make the following three debit card purchases: $32.08 for gas, $5.65 for lunch and $11.95 for a book. The transactions would be rounded up as follows: $2.92 for the first, $4.35 for the second, and $3.05 for the third - totalling $10.32 for the day. At days end there would be an automatic, no cost transfer of $10.32 from your chequing account to your high-rate savings account. Do that 20 times a month and you've got slightly better than $200 saved. Do that 12 times a year and you've got more than $2,400. So when you need a new set of tires for the car, you simply move the money from your savings to your chequing account and it's covered.

If you decide to just let it grow for a major purchase later, in five years you'd have almost $14,000 and in 10 years it would be very close to $30,000.

Canadians need to get back to the basic financial principals of saving money. With very rare exceptions, if you think of those people you know who have money - it's important to realize that they will likely not be the same people as those who look like they have money - they have it because they have been good at saving money.

If you're like most and are one of those people who have trouble getting money saved, I highly recommend you search out a free service like the one described here and start banking the rest right away.

Keir Clark, is a senior wealth adviser and life underwriter with ScotiaMcLeod, in Fredericton. He can be reached by e-mail at www.keirclark.ca or by telephone at 506-450-6465.