Investing will be a tough sell in 2010

By Mark Noble | December 21, 2009 | Last updated on December 21, 2009
4 min read

A pair of new studies suggest Canadians will be tight-fisted with their money in 2010, choosing to pay down debt rather than investing. However, Canadians are still finding a way to keep up with their charitable donations.

A new Harris/Decima survey conducted for Edward Jones asked more than 1,000 Canadians what their top financial priority would be for 2010. Over half of respondents plan to focus on paying down debt in 2010, with 35% saying it was their top priority.

Another 16% of Canadians say they are building a cash reserve for a rainy day.

While debt repayment is an admirable planning goal, it doesn’t do much to drive advisor revenues in the coming year. Neither age nor affluence seemed to have any bearing on choosing debt repayment as a top priority. Even those with household income in excess of $100,000 were on par with the national average, with 35% listing debt repayment as their top priority for next year, versus 13% who selected contributing to their RRSP.

When the wording changes to which areas will be a financial New Year’s Resolution, a much healthier number — 33% of respondents in the $100,000 club — selected contributing to an RRSP. Only 12% of this same group highlighted contributing to a tax free savings account (TFSA) as a priority.

Edward Jones speculates that Canadians are becoming aware of the debt-levels they have wracked up over the last few years. According to a recent Statistics Canada report, Canadians are deeper in debt than ever before. Household debt — mainly mortgages and consumer credit — has increased by 1.6% and the household debt-to-income ratio has risen to a record 145%. That means for every $100 income, Canadians carry $145 in debt.

“The tough economic times are bringing out the best in Canadian caution,” says Mary Chan, a principal and CFP at Edward Jones. “As the economy begins to show signs of recovery, investors need to remain focused on their financial goals by balancing debt reduction with good, long-term investment decisions.”

Chan suggests Canadians still may not be aware of the benefits of long-term investing. For example, Chan says a contribution of $5,000 every January that earns 6% annually would give you close to $80,000 in 10 years.

“Investing and staying invested for the long term can impact your long-term savings significantly,” says Chan. “It’s all about growth and compounding. What may appear to be small savings today can add up to something significant.”

Canadians still find money to give

One growing revenue source for savvy advisors may be charitable giving. Despite abnormally difficult economic conditions, Canadians still found ways to donate to their favorite charities.

Another Harris/Decima poll conducted by Investors Group found on average, Canadians contributed 13 hours a month to volunteer work and donated $1,041 to non-profit organizations in 2009.

Financial contributions to charity were constrained by economic conditions in the past year with 63% of respondents saying they were not able to give as much as they wanted, however the average estimated annual donation still compares well with Canadians’ estimated spending on holiday gifts, which was pegged at $607 this year.

Volunteer efforts are expected to see a large increase with three-in-ten (29%) Canadians saying they plan to donate more time to worthwhile causes in 2010. But financial contributions are also expected to enjoy an upswing, with 19% of respondents saying they plan to increase the size of their donations next year.

Richard Irish, vice-president of community affairs for Investors Group, says there is a growing secular trend amongst affluent clients in particular to create structured giving plans. Philanthropy is a core area of financial planning for the wealthy in the United States, and it’s starting to catch on here, particularly with the advent of donor-advised funds, on which advisors can earn commissions.

“What we’ve found in the last year or two years, there is definitely more of an interest with those with affluence to be more thoughtful with their giving. There is much more of an emphasis on planned giving and legacy giving. We’re finding with our advisors much more interest in charitable giving solutions as charity becomes a more important discussion with their clients. It’s something that is becoming top of mind with the population,” Irish says. “In the United States there is a huge tradition of family philanthropy. We haven’t had that same history, where there is so much more government support to allow for philanthropy, but I think there is a quick catch-up that is taking place in Canada.

Donor-advised funds have helped more advisors get on board with giving. Investors Group and its sister company Mackenzie Financial both use the same charitable foundation to run their donor advised investment programs. Through these programs clients can donate money or securities to a charitable foundation and advise on how the money is spent. Often a trailing commission can be earned by the advisor from the underlying funds.

If clients didn’t stop giving in this last year, it’s unlikely the trend will slow. Indeed, financial considerations are a marginal consideration for why most Canadians give.

Nine-in-ten survey respondents said the cause of a charity was a key factor in their decision. Only 34% cited tax credits and just 3% indicated they were motivated by the chance to receive public recognition.

“There is much more interest for donors to have a little more control with what their doing,” Irish says. “Even though 2009 was not a great year for donor advised funds or community funds, we’ve still seen quite a lot of interest.”


Mark Noble