How the lockdown is leading to more savings for some Canadians

With bars, boutiques, restaurants and salons closed due to the COVID-19 pandemic, many Canadians lucky enough to still have an income of any kind are discovering they’re actually saving money.

“I’m spending way less,” said Max Miller, 28, who works in financial services in Toronto. “With the exception of groceries, all of my other expenses have gone down and my discretionary expenses are almost at zero.”

Jo-ann Trunzo, 59, a former mortgage specialist in Winnipeg, said she was initially amazed to see a higher balance in her bank account.

“Then I thought about it and realized I’m just buying groceries, not going out for dinner or shopping. It’s so interesting to realize how much money you spend that you really don’t need to.”

Many Canadians have an opportunity to get a new perspective on their finances during the COVID-19 crisis, but the question is whether reduced spending will be a temporary blip caused by the lockdown, or whether consumers will start thinking twice about some of their purchases once the country reopens for business.

Credit card spending falls

Grocery bills are definitely higher for most people, as everyone is eating at home during the lockdown. But that represents a net savings for those who are doing their own cooking and not ordering in frequently. Homemade meals cost far less than restaurant food.

A survey done by Statistics Canada in early April found that while close to 30 per cent of respondents said COVID-19 affects their ability to meet financial obligations, almost 50 per cent reported only a minor impact or none at all.

Some Canadians are actually better positioned to meet their financial obligations during the pandemic.

For example, many people are driving less often, and when they do, they benefit from the current low price of gasoline. Some insurance companies are even giving rebates.

Some people are also saving money if they normally use public transit to travel to their workplace but are now working from home.

Meanwhile, discretionary spending on visits to nail salons, barber shops, travel, and concert or theatre tickets is no longer an option.

Those closures are creating hard times for countless small businesses, as well as those who work in Canada’s oilpatch.

Taking proactive measures

Gursh Singh, an online manager with Credit Canada Debt Solutions, a credit counselling service, says the agency has seen a recent increase in clients trying to position themselves to better manage their finances.

“We’re speaking to Canadians who are using this time to take proactive measures regarding their debt and finances,” she said.

Some are looking for more affordable ways to manage their debt, while others are sorting out negative items on their credit report, she said.

Official retail sales figures for Canada won’t be available for some time, so RBC economists used the bank’s proprietary spending data to create a snapshot of how the COVID-19 pandemic has altered Canadian consumption. The bank’s COVID Consumer Spending Tracker concludes that credit card spending fell approximately 60 per cent in the week that ended March 30 compared to the same period a year ago.

But beyond the forced frugality of a lockdown situation, the reluctance to spend could also be related to fears of a recession or even a depression ahead. The International Monetary Fund says that “as a result of the pandemic, the global economy is projected to contract sharply … much worse than during the 2008–09 financial crisis.”

Max Miller, the financial services worker in Toronto, said he plans to put his newfound savings to good use.

“I might put a little bit more toward the mortgage than I typically would, or I’m putting money into investments.”

Will the frugality last?

It remains to be seen whether this more restrained spending on the part of many consumers is a trend with any staying power. Canadians have grown accustomed to borrowing heavily to finance homes, cars, trips, and credit card payments.

In March, Statistics Canada reported that Canadian households owe an average of $1.76 for every dollar of disposable income. In other words, we spend and borrow almost double what we make. The Bank of Canada has been warning consumers about high levels of indebtedness for years, often citing the situation as a risk to the nation’s overall economic health.

Dimitry Anastakis, the chair of business history at the University of Toronto’s Rotman School of Management, said attitudes toward money are “generational,” and that many people who lived through the Second World War, or perhaps had parents who lived through the Great Depression, became savers.

“They had that instinctive response built into them, in reaction to what was basically 20 years of economic insecurity,” he said.

But the attitudes of baby boomers, gen Xers and millennials have been shaped by different circumstances, and many think of themselves more as consumers than citizens, he said.

“The baby boomers and all those that followed are not savers,” he said. “Their identities are caught up in what they wear, what they buy and what cars they drive. This is the consequence of an economic system that is geared toward credit and debt, rather than saving.”

Higher spending ahead

Anastakis says consumer behaviour following the Great Depression and the Second World War suggests Canadians are likely to return to their previous spending habits quickly, once there is a vaccine for COVID-19, and this fearful period ends.

“Historically, that’s always what’s happened,” he said. “When we’ve returned to normal, we’ve spent even more. We’ve been more consumptive. It’s a relief, ‘Oh we can spend again.'”

Max Miller said he tracks all his monthly expenses with an Excel spreadsheet.

“I have a very accurate picture of my finances at all times — probably excessively,” he said with a laugh.

The lockdown has cut out many of the regular expenses he and his girlfriend make, such as socializing in bars and restaurants and taking Uber rides, but he expects that won’t continue once the city starts opening back up.

“I anticipate all of my expenses after the quarantine to go back up to the usual amounts,” he said.

While that may not be ideal from a personal finance perspective, there’s no question it will be good for the overall economy.

Consumer spending typically accounts for 70 per cent of all economic activity; indeed, it’s what drove the rise of prosperity and stock market gains of the past decade, following the financial crisis of 2008.

But this historic chapter of a radically changed business environment could offer a lesson to many Canadians, about how to view our spending habits.

That’s how Winnipeg’s Jo-ann Trunzo sees it.

“This seems like a good time to separate needs from wants.”

CBC