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opinion

It’s time for Canada to adopt a true savings culture.

Consumers are sitting on a massive stockpile of COVID-19 savings that risks becoming an inflationary powder keg if that money is spent too quickly over the coming months.

Households accumulated $280-billion in extra savings over the course of the pandemic, the equivalent of more than 10 per cent of annual Canadian GDP, according to RBC Economics. Although some of it has already been used to pay down debt, purchase homes or ploughed into investments, a massive cash cache continues to sit in chequing and savings accounts.

Bank chief executives are warning that Canadians are primed to spend heavily with the further easing of pandemic restrictions. But if our collective urge to splurge results in feverish consumer spending, all that binge buying will further fuel inflation. A rapid depletion of those funds would also leave households vulnerable to ill fortune just as the worsening sticker shock sets in.

The Bank of Canada is sharpening its focus on inflation by ending its quantitative easing program and accelerating its timeline for potential interest rate hikes. But the federal government must also take this impending risk seriously and do whatever it can to prevent Canadians from further aggravating inflation by blowing through their savings.

To achieve this goal, Prime Minister Justin Trudeau needs to nurture a national mindset shift about money management. He should kick off that effort by temporarily bringing back Canada Savings Bonds – the formerly esteemed program his government killed in 2017 – and properly reward consumers who conserve their cash.

Don’t snicker. Many of us who are on the wrong side of 40 fondly remember a time when we could make juicy returns by investing in Canada Savings Bonds. Not only were they easy to purchase and risk-free, those paper certificates were oh so cool. Most importantly, though, they taught generations of Canadians how to save.

Introduced by the federal government in 1946, Canada Savings Bonds were initially offered in denominations of $50, $100 and $500 at an interest rate of 2.75 per cent.

Their popularity peaked in the late 1980s – the total amount of retail debt outstanding was nearly $55-billion in 1987-88. But they began losing their shine with consumers because of low interest rates and the growing appeal of rival products such as GICs, mutual funds and low-fee trading accounts.

These days, however, GIC rates are uninspired, some banks are giving consumers the one-finger salute with their controversial decision to stop selling third-party investment funds, and stock markets are due for a correction.

With inflation fears looming, the Bank of Canada is poised to raise interest rates as early as next April. Canadians, meanwhile, are turning their attention to safe-haven investments. As such, Ottawa has a valuable opportunity to provide investors with a risk-free product to bridge the current interest rate gap.

Specifically, Ottawa should issue special edition Canada Savings Bonds and offer them at premium interest rates. The bonds should be tax-free and have short investment terms – perhaps one year and 18 months, as examples – to give consumers real incentives to keep stashing their cash over the near term. That kind of flexibility would also give people the ability to reassess their options once interest rates start to rise.

Not only would reviving Canada Savings Bonds in that way provide more choice, they would offer unsophisticated retail investors – regular people who may not have a financial adviser – a safe investment.

The bonds would also keep them in the habit of saving, divert some funds from flowing to the already-hot housing market and reduce the temptation ordinary folks feel to dabble in high-risk investments, such as bitcoin.

Online sales probably make the most sense to get such a program off the ground quickly, keep overhead costs in check and entice younger people.

Toward that end, Canada should glean insights from a new online initiative in Britain. It recently started selling green savings bonds to retail investors through National Savings and Investments, a state-owned bank.

The bonds are available to consumers aged 16 and older, and allow individuals to invest from £100 to £100,000. More crucially, they give everyday citizens an opportunity to fund the government’s various environmental projects, such as renewable energy and zero-emission buses.

Their environmental focus has certainly generated a lot of buzz. Trouble is, green savings bonds only pay a fixed annual rate of 0.65 per cent and savers can’t touch their money for three years.

Who the heck wants to lock in their money for such a lengthy term at such a paltry interest rate when better deals could be had as soon as next year?

Let’s learn from Britain’s experience and avoid those pitfalls. If Ottawa acts quickly (there’s a first time for everything), there is value in temporarily resurrecting Canada Savings Bonds under attractive terms.

Not only would it reacquaint Canadians with how good it feels to save, it could potentially defuse some inflation risk and provide the government with a valuable source of revenue.

You’re welcome, Mr. Trudeau. Now get on it.

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