The Financial Health of Canadian Households

Canadian Financial Monitor

The Financial Health and Banking Channel Usage of Canadian Households

April 8, 2009

2Canadian Financial Monitor

-4

-3

-2

-1

0

1

2

3

4

5

Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10

An

nu

al %

Ch

an

ge

Real GDP

The Canadian economy is weakening. According to RBC Economics Research, a rebound in economic growth is anticipated in the second half of 2009 and will continue to gain strength into 2010.

Source: Statistics Canada (Q1’07 to Q4’08) RBC Economics Research (Q1’09 to Q4’10)


Despite all the negative numbers, Canada is still expected to be in a better position than many other nations during this global economic crisis.

-3 -2 -1 0 1 2

2009**

2010**

United KingdomJapan

Germany

Italy

FranceUnited States

Canada

GDP % Change Previous Year

Source: IMF. **Forecast.

And while more Canadians have lost their jobs, unemployment rates are still higher in many other developed countries.

8.1%

7.2%

7.2%

6.6%

6.3%

4.5%

6.7%*

France

Germany

UnitedStates

Italy

Canada

UnitedKingdom

Japan

* The chart above shows unemployment rate in Dec. 2008 for all countries except Italy data in Sep. 2008. Source: OECD and Bloomberg. Picture: TopNews.in


How has the economic downturn impacted the

financial health of Canadian households?


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Average Canadian Household Net Worth

Net Worth = Total Assets – Total Debt

The wealth of Canadians (i.e. household net worth) has ceased growing. After 4 years of steady growth, average household net worth has declined for 2 consecutive years starting in 2007.

Much of the wealth loss happened in the last quarter of 2008. After reaching a high in Q2’08, average household net worth dropped by 4% over the next two quarters.

$248,654

$259,673 $258,833

$248,705

Q1'08 Q2'08 Q3'08 Q4'08

Average Canadian Household Net Worth

Net Worth = Total Assets – Total Debt


Real estate remains the single biggest asset held by most Canadians.

62

31

7

Total Households

Real Estate Investable Assets Automobiles

A break down of the assets held by Canadians - % share of dollars – Total 2008Average Market Value of Total Assets

$312,172

Net Worth = Total Assets – Total DebtInvestable Assets = Chequing/Savings, GICs, Bonds, Stocks and Mutual Funds

Non Investable Assets = Real Estate and AutomobilesDebt = Credit Cards, Mortgages, Loans and Lines of Credit

% change - 2008 vs 2007Net Worth

Investable Assets

Non Investable

Assets

Household Debt

Total Households -1 -11 7 5

It has provided home owners with some protection from the stock market meltdown; percentage declines 2007 to 2008 on real estate (non investable assets) have offset declines in investable assets.


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Average Household Debt Average Household Income

Over the past 10 years, Canadians have accumulated debt at a higher rate than income growth. Average household debt has increased by 44% over the past 10 years whereas household income grew by only 28% over the same period.

The percentage of Canadians who are Heavy Borrowers is increasing. This suggests that the increase in overall consumer debt is being driven by Heavy Borrowers.

25

55

20

25

53

2225

54

21

25

53

2225

51

24

Debt Free Light Borrowers (Households with <$100,000 in debt)

Heavy Borrowers (Households with$100,000 or more in debt)

2004 2005 2006 2007 2008

% of Households


$5

$95

$18$24

$11$5

$104

$19

$29

$11$6

$107

$18

$32

$12$6

$116

$18

$32

$11$6

$125

$19

$31

$11

Credit Cards Mortgages Loans Secured LOC Unsecured LOC

2004 2005 2006 2007 2008

Average Outstanding Balance (000’s)

Much of the rise in overall household debt is being driven by mortgages. Over the past few years, Canadians have taken out increasingly larger mortgages; the average mortgage balance has increased by almost 1/3 in the past 4 years.


How are Canadians reacting to the economic slowdown? Like others around the world, we are cutting household spending.

80%80%

77%76%76%

75%75%

73%73%

72%70%70%

68%68%

59%59%

52%45%

87%84%84%

83%81%

South KoreaArgentina

TurkeyMexicoFrance

ChinaUnited StatesGreat Britain

BrazilIndia

AustraliaItaly

RussiaJapanTotal

CanadaBelgium

PolandSpain

Czech RepublicGermany

SwedenNetherlands

Source: Ipsos Global Economic Meltdown; a poll of 22 Countries; December 2008Q. Given the current state of the global economy, have you and your family had to cut back in your household spending recently?

Cut back on household spending, % yes


76%

73%

72%

59%

53%

47%

41%

33%

23%

11%

Entertainment

Vacations

Luxury Items

Clothing

Energy Consumption

Gasoline/Driving

Groceries

Cell Phone

Cable TV

Education

Much of the reduction in consumer spending is on entertainment, vacations and luxury items.

Source: Ipsos Global Economic Meltdown; a poll of 22 Countries; December 2008Q. What are the specific things that you and your family are cutting back on these days? Base: respondents who have cut back

% cutting back – average of all countries


Average monthly expenditure

$155

$107

$177$151

$91

$169$131

$97

$153$132

$81

$165

Eating out (Restaurants/Bars) Recreation (eg. movies, concerts,sporting events)

Clothing/Footwear

Q1'08 Q2'08 Q3'08 Q4'08

While the average monthly expenditure has declined …

88

5570

90

5676

91

5978

91

5679

Eating out (Restaurants/Bars) Recreation (eg. movies, concerts,sporting events)

Clothing/Footwear

% of Households who have spent money on

… the frequency of eating out, attending movies, concerts or sporting events and purchases of clothing or footwear has remained relatively unchanged.


46

39

46

5149

Total Households Under 35 35 to 49 50 to 64 >=65

I am confident that the financial institutions I deal with have the financial strength to survive in the current financial climate

% strongly agree (top 3 box on a 10 point scale)

* Source: Ipsos’s Market Now (Field work conducted between January 1 and 14, 2009).

Canadians still have a high level of confidence towards their financial institutions. This is especially true amongst older Canadians.


0

10

20

30

40

50

60

70

80

90

100

2000 2002 2004 2006 2008

Teller ABM Online Banking Phone Banking

This chart shows the incidence of Canadians using the various channels over the past month.

The percentage of Canadians banking online is approaching 60% and is almost as widely used as Tellers.

16

38

43

13

37

48

12

33

49

1 Only 2 Only 3 or more

2004 2006 2008

And the of Canadians using 3 or more channels continues to steadily increase.


The information in this report primarily comes from Ipsos Canada’s Canadian Financial Monitor.

The Canadian Financial Monitor (CFM) was launched in 1999 to address a market need for an all encompassing study to track the ongoing financial health, product holdings, banking habits, household expenditures and attitudes of Canadians.

Results for CFM are collected from a large sample of 12,000 representative Canadian households.

Information is collected on a monthly basis using a mail diary.

CFM captures a wide array of products including Chequing, Savings, GICs, Bonds, Stocks, Mutual Funds, Credit Cards, Mortgages, Loans, Lines of Credit, Life Insurance, Car and Home Insurance and Specialty Insurance.

The channel usage habits (i.e. Online, Phone, ABM, Teller), attitudes and sentiments of Canadians are also monitored.


CFM is a large study (actual sample size for 2008)

BC Alb Sask Man Ont Que Atl

1,643 1,120 463 554 4,418 2,805 1,001

Total Canada = 12,004

Toronto = 1,519Montreal = 1,400Vancouver = 672


© 2009 Ipsos – All rights reserved.

This report constitutes the sole and exclusive property of Ipsos. Ipsos retains all copyrights and other rights over, without limitation, Ipsos' trademarks, technologies, methodologies, analyses and know how included or arising out of this report. The addressee of this report undertakes to maintain it confidential and not to disclose all or part of its content to any third party without the prior written consent of Ipsos. The addressee undertakes to use this report solely for its own needs (and the needs of its affiliated companies as the case may be), only for the purpose of evaluating the report for services of Ipsos. No other use is permitted.

For more information about this presentation, please contactMichael Hsu

Ipsos Reid Corporation416-572-4406

[email protected]

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The Financial Health of Canadian Households