Banks Are Doing Well – How About You?

In spite of the fact that even little old Scotiabank just reported $1 billion in profits for the last quarter, sometime in the next few years you know we’ll be talking about bank mergers again. The argument by the banks is that they have to be much larger to compete globally. But the other side of that is the pretty sure bet that reduced competition will impact consumers in higher fees and rates, as well as less access, and the loss of thousands of jobs.

Not so many years ago, the banks told us they’d be in real trouble without mergers. Well, not quite, because they’re doing very well. In fact, Fortune magazine just released their Global 500 rating of companies. Yes, the largest firms ON THE GLOBE – so this is the list of the who’s who in the world.

And right in the middle, at number 250, is the Royal Bank, with net income of $4.7 billion – up 40% from last year. In fact, the big 6 banks made $19 billion last year between them – up almost 60% from a year earlier! Yes, 60% - did your income go up that much last year, or are you just paying way too much in interest and service charges to make the big 6 banks rich?

On the Global 500, the Royal Bank is just behind such giants as Suzuki Motors and Bridgestone. But they’re larger than Coca Cola and the drug giant Merck.

So the next time you’re looking for a loan or line of credit, don’t feel bad about negotiating a better interest rate. The banks are doing fine – it’s us consumers that need a break on interest rates and fees.

Or better yet, make one of your quotes from a credit union which isn’t just locally owned and controlled but is also non-profit and will rebate you a chunk of your interest costs at the end of the year in profit-sharing. I just got over $400 back for 2006!

And maybe one day the banks can actually take an interest in us - instead of just charging us interest.

Up Up and Away – Our Debts – Not Our Savings

The Vanier Institute released a study a couple of weeks ago called The State of Canadian Family Finances as well as a report form CIBC World Markets stating that we’ve still got our foot solidly on the gas pedal when it comes to taking on debt. So the average family is going backwards financially, and not ahead.

25 years ago, our total debt was 86% of our household incomes – today it’s 122%. So we’re increasing our debts, which come along with higher and more payments, which obviously take away a bigger chunk of our income. In fact, the studies point out that the end of 2006 saw our debts increase twice as fast as our incomes.

But to pay these payments we need more money than we’re earning. Never mind the fact that we’re also stretching the terms of what we’re borrowing. That’s why our savings rate is now minus 1 percent. We’re actually cashing in savings and going further in the hole. We’re robbing tomorrow to pay for yesterday because 60% of households are out of money before the end of the month arrives.

Oh sure, the top 20% still save – they save $16,000 a year on average, but the rest of us don’t and almost 50% of us have no savings on hand at all.

So does your emergency fund have a credit card logo on it? Does $1,000 or so of room on your credit card seem to be your emergency fund?

What does our increased debt load also cause? Well, the rate of home ownership is actually dropping in Canada. In fact, for people under age 44, it’s dropped almost 10%. More debt for things we thought were important yesterday, more payments at higher and higher rates, no savings to speak of and much less chance to purchase a home.

It’s a vicious cycle, yet economists keep telling us it’s not a problem. And what’s even more scary is that so many people believe that – or is that just what we want to hear instead of facing our financial reality and making some difficult spending choices?