Canadians have been actively diversifying their asset portfolio in recent years, preferring to invest more in real estate than financial assets, according to a report released today by Scotia Economics.

“Canadians have been taking advantage of generational low interest rates and rising home values to invest more in real estate,” says Aron Gampel, deputy chief economist, Scotia Economics. “This development is particularly relevant to the issue of saving, since real estate investments, home buying as well as renovations, are not included in the conventional methodology for determining the national savings rate.”

According to the report, the bellwether national rate of savings – the difference between current personal income and expenditures measured as a share of disposable income – had effectively plunged to “zero” in the July-September 2004 period. This marked a low point in the 22-year declining trend from the savings rate of 20% set in 1982.

However, the report says the performance of household balance sheets presents a much brighter snapshot of the financial well being of Canadians, due to increases in home prices and home ownership rates. Total assets have climbed to record levels, pushing the collective net worth of households to an all-time high of almost six times annual personal disposable income in 2004. The increase in net real estate and financial assets as a share of after-tax income has averaged roughly 35% in 2003-04, above its long-term trend of close to 30%.

Gampel cautioned, however, “not everyone in Canada is financially set for retirement.” A meaningful slump in real estate values, for example, would have serious consequences, not only for consumer purchases, but also for the equity and capital gains that are the foundation for the discretionary savings of the majority of Canadians.

The report also found that Canadians are not taking full advantage of their RRSP room. In the 2003 tax year, 5.9 million Canadians made a contribution to an RRSP, down from 6.3 million in 2000, representing just 34% of eligible taxfilers. Total contributions of $27.6 billion represented only 9% of the total room available to these taxfilers. The median contribution has remained steady at roughly $2,600 since the beginning of the decade, despite expanded contribution limits.