John McNain is head of personal banking products and experience at Bank of Montreal.
COVID-19 has left the Canadian economy reeling. Lockdowns have dealt small businesses a severe blow with uncertain prospects for recovery, and many people are waiting anxiously through a precarious employment period.
But at the same time, others have experienced an unexpected side effect: a significant increase in personal savings driven by reduced spending and vital government support programs.
A recent report from BMO Economics found the household savings rate hit a massive 27.5 per cent in the second quarter, compared with an average rate last year of just 1.4 per cent. They estimate this savings surge equates to a $150-billion increase over normal standards – a whole 7 per cent of GDP.
What does this mean? As vaccines roll out and the world returns to normal, we can expect our spending habits will, too. This savings reservoir will almost inevitably lead to its own form of stimulus for the Canadian economy in the months ahead. Considering last summer’s partial reopening led to vigorous spending, it’s clear Canadians need little convincing to ramp up their economic participation once the opportunity presents itself.
But this is not the time to act without caution and care. The recovery will no doubt be fragile, and we all need to do our part thoughtfully when activity resumes. To achieve this, we want all Canadians to consider a broader approach of what responsible spending looks like.
Post-COVID, being responsible with spending means thinking about how we act on a household, marketplace and community level. Each plays a vital role in the recovery and must be considered seriously.
Starting at home, on a personal and family level, we need to be responsible by maintaining some of the good habits the pandemic may have prompted. Continue good savings habits and working to pay down debt. Pre-COVID, Canadian household debt was hovering near historic highs, but government support, mortgage deferrals and significant growth in savings has led to a major improvement in the debt picture. There is an opportunity to maintain this progress, and it has the potential to support both households and the broader economy for years to come.
Second, we need to be responsible by supporting local businesses that have suffered from the pandemic’s economic dislocation. We know that many businesses – particularly smaller ones – have struggled to stay afloat with so many customers staying home. According to Statistics Canada, almost one-quarter of businesses with 19 or fewer employees saw their August revenue drop 40 per cent compared with last year. Meanwhile, 6 per cent of businesses with one to four employees are considering bankruptcy or closing altogether. These businesses are the backbone of our economy and the beating heart of communities across the country. When we can, we must support them to ensure the stability of their operations and opportunity to succeed.
Finally, we need to be responsible by actively participating in philanthropy. A report from Imagine Canada suggests 68 per cent of charities have seen a decline in donations since the start of the pandemic – during a time when the services they provide are needed more urgently than ever. The same report shows that while most Canadians know the need has increased, only about half are planning to make donations this holiday period.
The reticence to give is understandable at a time of financial fragility and it’s no surprise to see less spending on anything that’s not a household necessity. But the pain and suffering caused by the pandemic won’t disappear right away, even after we get back to normal. The need for charitable services will no doubt be elevated for years to come. All of us who can give must take the opportunity to help more of us weather the storm and come out the other side in the best possible position.
The arrival of vaccines has given all of us hope that the COVID-19 pandemic is nearing an end. As the close of the public-health crisis alleviates pressure on the economy, we can all play a part in a speedier recovery by ensuring our spending choices are responsible ones. Canadians have an important opportunity to stand up for both themselves and each other. Let’s not squander it.
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