After a year of pandemic prudence, Canadians likely eager to spend the billions saved

If there is one silver lining to the COVID-19 pandemic for Grayham Havens, it was celebrating his two-year anniversary with his wife by purchasing a house last month.

All the government restrictions during the pandemic helped him drastically reduce his spending over the last year and begin socking away cash every month. After clearing leftover debt, the couple saved enough for a down payment.

Now, at the age of 40, Havens is a first-time home owner.

“We’re so fortunate, very fortunate, to get something like this,” he said about their grey bungalow in southeast Calgary, complete with a large deck, fire pit and pond in the backyard.

Havens isn’t alone. Canadians have saved a record amount of money during the pandemic, resulting from the combined impact of reduced spending and collecting more money from government support programs.

How the lockdown is leading to more savings for some Canadians

Havens and his wife were both able to collect Alberta’s critical worker benefit, as he was working in the grocery sector and she was involved in health care.

At the same time, their discretionary expenses — spending at places like restaurants and movie theatres — dropped sharply.

“We started saving thousands every month,” he said. “It started making me realize just how bad we were budgeting our own money in the first place. I mean, money was leaking left and right.”

Record savings

Not everyone has extra money in the bank — but many do.

In fact, Canadians amassed $212 billion last year, versus $18 billion in 2019, according to Statistics Canada. That works out to $5,574 per Canadian on average in 2020, compared to $479 in the previous year.

The average savings rate jumped from 1.3 per cent of disposable income in 2019, to 14.9 per cent in 2020. In April, May and June of 2020, the savings rate peaked at about 27 per cent.

As a result, credit card balances are down, fewer people are behind on payments and credit scores are up, according to credit rating agency Equifax Canada.

The situation varies greatly from household to household, as there continues to be a deep division between the financial situation of many Canadians. In short, if you were able to keep your job and stay healthy, you were likely to see your finances improve during the pandemic.

“It was easy to save. It was not very forced. I can’t go get my nails done, get my hair done, going to the pubs a lot less,” said Karen Jacobs, who also purchased her first house, with her husband, in February.

They are now renovating the home from top to bottom after saving nearly $1,000 a month during the pandemic, including through lower phone and insurance bills.

The record level of savings is not the only reason behind Canada’s rising home prices, but it could provide a significant level of economic stimulus across the country.

Economic boost

As restrictions are eased, many Canadians have cash to burn.

“For a year-and-a-half, it feels like we’ve been locked down, so I feel like there is going to be quite a rush to go do anything,” said Lachlin Muir, general manager of Distilled Beauty Bar in Calgary.

The shop’s online booking system crashed earlier this month as customers tried desperately to book hair and nail appointments following the loosening of restrictions in Alberta.

Many businesses affected by the pandemic are hopeful that pent up demand and customers’ heap of savings will now translate into a blockbuster summer.

“Quietly optimistic. Actually, jumping up and down optimistic. And we’re starting to see it,” Megan Szanik said of her expectations. Even though traffic into espy Experience, Szanik’s clothing boutique in Calgary, has yet to pick up, she said customers are spending much more than normal.

The high level of savings by Canadians could provide a major jolt to the economy and ultimately replace the need for extended government assistance programs, many of which began during the pandemic.

“The real concern financially is going to be when all of that dries up, do sales kick up enough?” said Szanik, who has relied on wage and rent subsidy programs over the past number of months.

“I’m really proud that I’ve kept 17 people working for these 15 months. But what’s going to happen when that ends?”

Some fortunes rise, others fall

Overall, Canadians have saved about $230 billion throughout the course of the pandemic, said Charles St-Arnaud, chief economist at Alberta Central, the central banking facility for the province’s credit unions.

Some of that money has been invested and used to pay down debt. Still, he estimates, about $150 billion is sitting in bank accounts and could be accessed with the swipe of a bank card.

“In the aftermath of the pandemic, we can expect households to make more savings than they have done in the past, but the vast majority will be spent,” he said.

Lower-paid workers, as well as those with less education, have generally struggled the most financially during the pandemic, as they were most likely to lose their jobs or face reduced hours, he said.

But if consumers become more confident in their spending as lockdown measures are eased, St-Arnaud said the boost in business for the hotel, restaurant, tourism and other affected sectors could help those workers most negatively impacted during the pandemic.

CBC