Consumer Research by The Boston Consulting Group: More Canadian Than U.S. Consumers Plan to Cut Spending This Year Even Though Canadians Are Entering the Recession in Much Better Financial Shape

TORONTO--(Marketwire - January 5, 2009) - Although Canadian consumers are in structurally better financial shape than U.S. consumers, Canadians plan more dramatic spending cuts and shifts in behavior this year in response to the recession than do U.S. consumers, according to research and a new survey by The Boston Consulting Group (BCG).

"Compared with U.S. consumers, Canadian consumers are entering the downturn with more secure household finances, healthier real-estate fundamentals, and more conservative levels of credit and debt. Despite this structural superiority, Canadians are battening down the hatches and bracing for a tough year ahead," said Cliff Grevler, a BCG partner. "Canadian consumers are planning cutbacks in 2009 to a greater degree than their U.S. counterparts. We anticipate that the result will be a 'cycle of thrift' in Canada, and it will have self-fulfilling effects."

Canadians Are in Better Financial Shape than U.S. Consumers

The BCG research -- the first to compare Canadian, U.S., and European consumers in the current downturn -- shows that Canadian consumers have entered the recession in a better structural position than U.S. consumers.

-- Canadians have higher savings rates: 3 percent in 2008 compared with about 1.5 percent among U.S. consumers. In addition, Canadians have lower debt-to-income ratios and bigger equity stakes in their homes. (Not only are U.S. residents' equity stakes in their homes lower, but those stakes are also declining.)

-- The residential real-estate market is healthier in Canada than in the United States: Canada has a lower mortgage-delinquency rate; subprime loans aren't nearly as common; and there is less securitization of mortgages, leading to more rigorous lending standards.

-- Canadians are more conservative with credit cards: Average credit-card debt per household in Canada is $3,100 compared with $8,200 in the United States. More than 70 percent of Canadian households pay off credit card debt each month, but less than half of U.S. households do. Canadians average two credit cards per household, while U.S. consumers average six. And the credit card delinquency rate in Canada is half of what it is in the United States.

Nonetheless, Canadians Are Responding More Dramatically to the Recession

Despite their superior financial position, Canadians express great economic concern and voice intentions to shift their behavior more dramatically than U.S. consumers say they will, according to a BCG survey of 1,000 Canadian adults in charge of household purchasing and a similar BCG survey of U.S. consumers.

-- Greater numbers of Canadians -- 62 percent -- plan to reduce spending over the next year, compared with 58 percent of U.S. consumers and 56 percent of European consumers in the United Kingdom, Germany, Spain, Italy, and France.

-- Whereas the Canadians who plan to cut spending anticipate doing so by 15 percent, the comparable U.S. and European consumers plan to do so by only 13 percent and 12 percent, respectively.

-- One-third of the Canadians -- 33 percent -- said that they were not financially secure, and an additional 8 percent said that they were in financial trouble.

Canadians Are More Aggressive About Trading Down -- and Saving

"Canadians are more intent on stretching their dollars in 2009 than are their U.S. counterparts," said Grevler.

-- Nearly three-quarters -- 72 percent -- of Canadians said that they will pay more attention to and buy more products that are on promotion. Only 65 percent of U.S. consumers expressed that intention.

-- Whereas 69 percent of Canadians said that they will defer major expenses that can wait, only 63 percent of U.S. consumers expressed that intention.

-- Furthermore, 58 percent of Canadians said that they will significantly cut spending on nonessential items, compared with only 50 percent of U.S. consumers.

-- The categories that Canadians and U.S. residents are most likely to focus on for cuts are restaurants and fast food (49 percent), vacation travel (40 percent), consumer electronics (28 percent), home furnishings and décor (27 percent), and cars (20 percent).

"Canadian consumers are clearly more conservative than their counterparts in the United States. It's notable that when asked why they intend to cut spending this year, 51 percent of Canadians said one of the reasons is that they expect to save more money; only 45 percent of U.S. consumers gave that reason," he added. "It's worth keeping in mind that most Canadians, 64 percent, said that they think the downturn will last a year or more and that more than a quarter, 26 percent, said that U.S. economic news influences how they spend."

Women Bear the Brunt of the Economic Downturn

The research suggests that Canadian women are internalizing more of the concern over the economy.

-- A greater proportion of Canadian women, 30 percent, said that they feel insecure about their current finances, compared with 19 percent of men; 41 percent of women said that they feel as if they have too much debt, compared with 27 percent of men; and 14 percent of women said that they worry about losing their job, compared with 10 percent of men.

-- What's more, 41 percent of Canadian women said that they're working harder than ever, compared with 31 percent of men.

-- In addition, 65 percent of Canadian women say that they'll cut spending, compared with 58 percent of men. Those Canadian women plan an average spending cut of 16 percent; the men anticipate a 13 percent cut.

"More and more, women are defining the consumer economy. Our research suggests that women control 68 percent of consumer spending in Canada. They are the accountants of the household budget, and, increasingly, they're responsible for producing the income too. It's not surprising that the shift in the economy is registering more profoundly with them," said Grevler.

He added, "Canadian consumers are bracing for a tough year ahead. The challenge for consumer businesses here is to be better than their competitors at understanding consumers and their concerns and at providing new angles on value. To capitalize on the accentuated trading-down bias, businesses need to move beyond price slashing and devise ways to make consumption feel -- and be -- like saving."

About the Survey Methodology

This Household Spending survey on Canadian consumers' sentiment and spending behavior was conducted online by Research Now on behalf of BCG, from November 28 through December 1, 2008. The survey focused on 1,000 adults aged 18 and older who do the majority of shopping for their household. A similar version of the survey, fielded at the end of October 2008, was conducted in the United States and Europe, providing basis for comparison.

References to "consumers" reflect respondent samples of adults aged 18 and older with a household income of more than $50,000 who conduct at least half of the shopping for their household. These consumers represent more than 75 percent of Canadian household spending.

All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of errors that are most often not possible to quantify or estimate. These include errors associated with sampling, coverage, nonresponse, wording of questions and response options, and post-survey weighting and adjustments. The margin of error for this survey is as high as 3.8 percent. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100 percent response rates. These are only theoretical: no published polls come close to this ideal.

Respondents for this survey were selected from among those who had agreed to participate in Research Now surveys. The data have been weighted to reflect the composition of the Canadian adult population. Because the sample is based on those who agreed to be invited to participate in the Research Now online research panel, no estimates of theoretical sampling error can be calculated.

About The Boston Consulting Group

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