The ROI of Saving Like A Canadian

As some of you may have already read, I'm travelling in Southern Africa and a few fellow personal finance bloggers are posting on F2P in my absence. This second article is from Flannel Guy ROI. FG loves numbers and calculating the return on investment on, well, just about anything. Don't believe me? He's even done the ROI on eating pot candy as opposed to drinking alcohol! Yup, you read right...pot candy. FG is also an avid reader of fiction and offers some great recommendations on his blog.


Abstract

Who has an easier time saving money, Canadians or Americans?... Canadians!  

According to median income numbers and average personal savings rates, typical Canadians save about $500 more per year than typical Americans. On its own, this probably isn't enough reason to switch citizenship, but it will save a few years off a working career by the time of retirement.

In addition to a few less years of work, there are some other pretty fantastic benefits to living in Canada, in my humble opinion, which include things like mandatory paid time off, paid maternity leave, government-run healthcare, greater social mobility, less inequality, better positioning to handle climate change, cheaper college, better education, more international travel, happier and more fulfilled people, stronger marriages, less jail time, and oh, did I mention more sex?  Yeah, that too.  I've got all the deets below. :)

Intro

  Photo by: Chris Wattie/Reuters via macleans.ca

Photo by: Chris Wattie/Reuters via macleans.ca

Every now and again I hear Americans make Canada jokes or simply try to little-brother our northern neighbors, but, I think they've got it all wrong. In a very real sense, the joke is actually on them.

I mean, sure, Canada has about 1/10th of our population, so in that way they are sort of like a little sibling, but in a lot of really important ways Canada actually deserves to be little-brothering us. So for the Canada-joke-quippers, I think it's high time to just come on out with the nationalistic insecurities and acknowledge the many facets of Canadian awesomeness. (We're not that different anyway.)

To get on with the actual analysis, the headline premise of this post is whether or not it's easier to retire early in Canada or the U.S., in other words, in which country is it easier to save money? There are a bunch of ways to answer this question, but I'm going to take the simple route, comparing median after-tax incomes and average savings rates.  

This is by no means the perfect way to answer that question. The nice thing about doing it this way, though, is that I don't have to account for higher consumption taxes in Canada nor try to figure out all sorts of teeny details like relative costs for certain bundles of goods in each country and different spending habits for different socioeconomic groups. It's all implicitly taken into account with savings rates and after-tax incomes (the really big underlying assumption here is that Canadians and Americans have similar consumption preferences).

My history with Canada

I've been intrigued by Canada for more than a decade now, and I still play with the idea of moving my family there someday in the future... just so you know, this isn't just some tongue-in-cheek flattery for the, albeit fantastic, Free To Pursue blog and its readers... I really do have an affinity for the big red maple leaf.

My first brush with Canada's awesomeness was a quiet, skinny, nonchalant, progressive college surfer friend and hockey fan from Pensacola, Florida. This guy had some amazing stories and absolutely loved all things Canada.

He loved Canada so much that from the age of 18 on, he planned on moving there... too bad he had to fall in love with a family girl from New Orleans :P (she's pretty awesome actually).  

So anyway, his passion for Canada sparked my own curiosity, and I found a way to visit a few cities like Montreal, Toronto, Victoria, and Vancouver. I still have dreams about Montreal today, they involve great museums, live music, and food, but considering the outstanding parking violation I have there, I'm somewhat doubtful that I'll ever be able to make those dreams a long-term reality.

It's okay though because Vancouver and Toronto were pretty awesome as well, and I hear that Calgary and Winnipeg are pretty cool too (Right Ms. F2P? F2P: You bet. Here's a picture I took early August to back it up:)

Why Canada is pretty boss:

But anyway, what I wanted to do is kickoff a list of all the things that make Canada a great place, starting with a memorable anecdote from my Vancouver trip.  

My most recent trip to Vancouver was for a conservative business conference (there were protesters outside) where the average attendee age was probably in the low 50's. During one of the coffee breaks, with about 800 people still in the main room, a superb, but undoubtedly explicit (and sexist), contemporary R&B song, All The Time by Jeremih, was played in its entirety as very audible background networking music for all the grey-haired conservative conference attendees.  

You can imagine my bemused surprise when the song first came on, and then the mounting giddiness and amazement when nobody in the room even batted an eye (ear?). For me, that sort of sealed the deal on Canada.  Looking back, however, I shouldn't have been surprised because, compared to Americans, Canadians really know how to get down.

With that as background, let's jump into all the other things that make Canada pretty boss:

(If the data is unsourced, you can assume it came from this Maclean's article, "99 reasons why it's better to be Canadian.")

  • Happiness - Canada is consistently ranked as one of the happiest countries in the world, happier than the U.S. in most cases, such as in the 2013 World Happiness Report, where Canada is ranked 6th and the U.S. is ranked 17th. Canada is actually the only Americas country to be ranked in the top 10.
  • Healthcare - Canada is famous, or infamous, depending on the political leanings of the person you talk to in the U.S., for their government-funded healthcare system. They provide better care at a much lower cost per person than the U.S., in hospitals, clinics and in delivering long term care services. Most people don't have to pay much out of pocket for healthcare in Canada because they pay on the back end with taxes, but even including taxes, healthcare is still much cheaper and more effective.
  • Education - Canada consistently outranks the U.S. in education. Additionally, college is much cheaper in Canada, with tuition at about $5,150 versus $8,250 for in-state tuition in the U.S. and more than $20,000 for public out-of-state tuition, although the U.S. in-state number can be a little more competitive after considering grants and scholarships. On top of that, more people have college degrees in Canada, and poor kids are almost twice as likely to be enrolled in college in Canada as they are in the U.S.
  • Inequality and social mobility - There is less income inequality in Canada, and the bootstrapping American Dream is actually healthier there than it is here in the U.S. for both immigrants and natives, meaning that it's easier to get ahead in life through sheer hard work, smarts, and determination.
  • Politics - Canada is more socially progressive than the U.S. (attitudes about homosexuality for example). They have more women in politics, fairer elections, and tend to be more politically productive than the U.S., although, let's face it, an elected body of snails would probably be more productive than U.S. congresses as of late. And finally, Canada keeps things pretty simple and pretty peaceful with their "you do you, let me do me" approach.
  • Health - Infant mortality is lower in Canada, along with obesity, suicide, and youth death rates.  Additionally, newborns get a very important health and development boost in the first year by spending more time with their parents. Mothers get 15 weeks paid maternity leave plus a combined 35 weeks unpaid to be divided up between parents as they see fit. A good portion of Canadian employers even top up these benefits as a way to retain employees, which helps families further alleviate the financial strain this time away from the workforce can cause. Compare this to the US, which only guarantees 12 weeks of unpaid leave and is one of the few countries in the world not to require any paid maternity leave (high-fives Swaziland and Liberia!). And, there are other "health" benefits as well, namely a more frequent dose of sexual healing. Canada sexes it up more frequently than we do here in the U.S. and that's with an older population to boot!  So don't let the politeness fool you... Canada knows their way around the bedroom! (perhaps it's that French influence...) Maybe this is one of the reasons fewer couples divorce in Canada. :)
  • Work / life balance - Besides the paid and extended maternity leave, Canada also requires two weeks and nine holidays of paid time off for all employees. The U.S. on the other hand requires no paid time off nor paid holidays, and it shows, with roughly 23% of the workforce not receiving any paid time off. So what is the flip side of almost 20 days of mandatory paid time off for all working Canadians? They get a lot more opportunities to travel and see the world. Sixty-five percent of Canadians hold passports, compared to 35% of the U.S., and it's not just so that they can come visit their little brother down south. Canadians take a little under one trip abroad per person per year to somewhere other than the U.S. versus about one trip abroad per ten people per year for Americans. For example, F2P has visited 18 countries so far
  • Geography - Okay, so it's damn cold in a lot of Canada for much of the year (not to belabor the point, but another possible explanation for the sex stats), however, looking forward, that might be a good thing. As climate change (global warming / weirding) accelerates, Canada will probably become more temperate and hospitable. This could actually increase agriculture production among other things. If so, Canada would be sitting pretty as their water resources are also comparatively abundant. This is a real advantage as potable water demand will likely continue to climb with fluctuating weather patterns/climates (case in point: the Western U.S. 2012-2014). Not to mention the stunning landscapes such as the Canadian Rockies, but to be fair, the U.S. has a lot of those too.
  • Crime & Punishment - The U.S. incarcerates people 7 times more often than Canada. Part of this has to do with the fact that Canada is safer overall, with less crime, homicides, and robberies, but part of it also has to do with less severe sentences for non-violent crimes, low-level drug crimes in particular. Canada also doesn't have a death penalty, as opposed to the U.S. which shares that honor with a few more dubious regimes worldwide (fist bump, Iran!).
  • Canadians - Yeah, that's right, the people!  Besides having some really fantastic authors (Saul Bellow, Alice Munro, Margaret Atwood, Carol Shields, Gabrielle Roy, etc.) and being pretty forward-thinking, Canadians are polite, super friendly, and very helpful in my experience, plus they're fun too (case in point: this blog). I get the sense that I'm being judged there less as well. Worldwide, people tend to love Canadians as well, earning them the top spot on the Reputation Institute's ranking of countries for trust, admiration, and likability.
  • Personal Finances and Early Retirement - I don't want to jump the gun, but the short version is that Canadians save a larger portion of their disposable income while also having less debt. On top of that, the middle class in Canada is now believed to be the richest in the world after taxes. If you're a PF nerd like me, you understand pretty quickly (spoiler alert) that higher savings rates + less debt = earlier retirement.  But that's a topic for my next and final section:

The 10-year return on investment (ROI) of being Canadian:

So how much more do Canadians actually save? Like I said this is sort of an imperfect science, but the most recent data suggest that Canada has an average personal savings rate of about 5.4%, which is expected to climb to 6% by 2016. The U.S. on the other hand has an average personal savings rate of about 4.6% that has been steadily declining since the 1980's.  

For early retirement, it really is all about the savings rate, but readers might be interested in standard of living too (absolute dollars or purchasing power). So the big news here is that median disposable income in Canada is actually expected to have surpassed the U.S. since 2010, when they finally caught up with us.

Since we don't have hard data there yet, however, I'm simply going to assume that median after-tax household incomes are still equal and just use the difference in savings rates to calculate the ROI.  

In other words, I'm assuming a median household disposable income of about $51,000 in both countries, even though Canadian incomes have probably surpassed American incomes in the past four years. If anything, this makes the analysis a little understated.

So how do those numbers play out over the course of ten years for an American family thinking about maybe making the switch to Canada? Here's the skinny:

 Chart above depicts the ROI of the difference between Canadian and American average savings rate.

Chart above depicts the ROI of the difference between Canadian and American average savings rate.

This means that, financially speaking, living in Canada is worth about $5,000 more in savings every 10 years versus living in the U.S. for a normal middle class household. While $5,000 over 10 years, or about $500 per year, isn't going to make or break most middle class families, it's still a sizable chunk of change, and remember, it has probably gotten bigger since 2010.

Finally, just to touch on one last thing, if someone isn't middle class, the financial incentives are a little different. Canada isn't nearly as unequal as the U.S., which means that Canada's poor population is actually much better off than the poor population here in the U.S. The flip side of that is that the upper echelons will probably enjoy comparatively better lifestyles in the U.S. than in Canada.

From an immigration perspective, this makes Canada seem a lot more appealing: the downside risk of ending up really poor is smaller; immigrants are more likely to earn an income that is similar to everyone else in Canada than they are in the U.S.

However, with America's lower taxes and a more privatized economy, it could theoretically be easier for really strategic early retirees to optimize their savings and spending equation here in the U.S. (move to low tax state, don't have kids, maximize tax-advantaged retirement contributions,etc.).  

But early retirees aren't average, they're sort of a rare breed. For normal people, for both financial and non-financial reasons, the case for living in Canada versus the U.S. actually looks pretty darn strong.

Conclusion

Yes, for the average person, living in Canada probably means you'll be able to retire earlier by saving more money, and the trajectory involves going up there, so get in early! On top of that, there are plenty of non-financial reasons that would make moving to Canada beneficial as well.

Don't wait too long because once I get my extended family singing O' Canada, there'll be 20 fewer spots available for all the other aspiring northern expats out there... get in where you fit in! ;)


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