Canadians added an incredible $127-billion to their savings in the first half of the year. How did they do it?
Some fresh numbers on consumer spending from RBC Economics offer some perspective. While overall consumer spending was up 2 per cent in August on a year-over-year basis, expenditures on travel and dining out were down. The economic lockdown to fight the pandemic has eased a lot, but not enough to provide Canadians the freedom to pursue two of their favourite activities.
Travel spending was down about 60 per cent compared to August 2019, although gas and automotive spending did rise a bit. While grocery spending was up 20 per cent, the amount spent on dining out was down 4.3 per cent. The $127-billion didn’t come from reduced spending on trips and dining alone.
Saving on daycare has helped a tonne, and so has a reduction in spending on entertainment. But the declines in travel and restaurant dining do show how exercising some spending restraint can help free up cash for saving. Unfortunately, it’s primarily well-off people who benefit most from this saving opportunity in the pandemic.
The Atlantic recently published an article on how the pandemic has created a class of “super-savers” – they’re mostly financially comfortable people. An economist explains that people who had the fewest job losses are the ones who have had the biggest cut in spending. The Atlantic article explains this via comments from professionals and other well-off people who have cut out travel and restaurant meals. One engineer estimated he’s spending about US$750 less per month on food in the pandemic.
The pandemic has been good for the personal finances of the financially secure. Their houses are soaring in value, their stock portfolios have surged back from the lows of March and they’re spending has been curtailed, which means they’re saving a bunch.
Will governments tap into this wealth via tax increases to help the people hard-hit in the pandemic? Should they? The next few federal and provincial budgets should be interesting.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, September 10, 2020