A new report suggests Canadians aren’t investing their hard-earned money. In fact, they’re holding a record $75 billion in extra cash and are saving money at unprecedented rates.
The report by CIBC says Canadians are nervous about the markets and the economy. The $75 billion represents nearly 10% of the total value of personal liquid assets nationally.
“We are currently witnessing the creation of personal cash buffers larger than at any other time on record,” said Deputy Chief Economist at CIBC World Markets Benjamin Tal in a statement. “From a broader perspective, the Canadian economy is losing out because capital is not being allocated efficiently.”
Indeed, the report notes cash hoarding has steadily increased among Canadians since the rise of the 2008 global financial crisis. CIBC says this represents billions in lost investment returns.
Foreigners, according to the report, have “an overly sour view of Canada” and are steering clear of investing in our economy, and volatility in the stock market globally is generally making people keep their money to themselves.
Interestingly, younger Canadians are holding more cash than their older counterparts. People under 35 are holding twice as much cash at 33% versus those closer to retirement, who hold 15%.
“Consistent with past behaviour, Canadian investors have used current market volatility as an excuse to let cash pile up in their chequing and savings accounts,” said Tal.
The stock market correction of October 1987 showed similar findings. Canadians were hesitant to reinvest in stocks after nearly a year and a half, despite the slump only lasting two months and the market rallying more than 20%.
“While the rush to cash during periods of volatility is understandable, the problem is that Canadians maintained those elevated cash positions for far too long after markets rebounded,” said Tal.
Read the full report here.