Is inflation eating up Canadians’ COVID-19 savings?

Back when COVID-19 restrictions had many of us sitting at home with little to spend our money on, economists and financial observers began talking about how the barriers to spending (no travel, fewer goods and services to buy) would create a monster pandemic savings pot.

And they were right, it did. But now, reports Jason Kirby in The Globe and Mail, that giant horde of unspent cash could be getting devoured by an unexpected new entity – inflation.

“Average household net savings fell 44 per cent to $1,900 in the first quarter from the year before, according to Statistics Canada’s latest release of household economic accounts broken down by income and age,” he writes. While all income groups saw their savings fall, the article notes that those with the lowest incomes saw the biggest decline.

A graph in the article shows that as recently as spring of 2020, the average Canadian household had upwards of $5,500 in savings. That means we’ve experienced a drop of nearly two-thirds in household savings.

The article says that the savings dip is not totally bad news.

“The good news, as far as spending continuing to fuel the recovery, is the average household still has more savings than they did before COVID-19 hit and governments ramped up income support programs,” the article tells us. “Stats Can data show the average household still holds 63 per cent more in net savings than before the pandemic, even though that amount has shrunk by more than two-thirds since the second quarter of 2020,” the piece reveals.

But while the wealthier among us “have a far better ability to absorb the shock of rising prices for goods and services,” lower-income folks are having a far tougher time.

For the lowest income bracket, the article notes, “the average household in that group has negative net savings — meaning they spent more than their disposable income — and are further behind than they were before the pandemic.”

Falling into a situation where you spend more than you earn – and are living on debt – is made even more perilous by those rising interest rates, reports The Financial Post.

“Canadians who took out mortgages for 4.5 times their gross income — a not uncommon practice when housing prices shot up during the pandemic — could see payments increase by $187 to $281 from 2022 to 2024, which would absorb as much as 2.6 per cent to four per of their net income,” the article states, quoting a recent study authored by National Bank of Canada economists Matthieu Arseneau and Daren King.

So the takeaway here is that we all need to try our best – and it isn’t easy when gas hits more than a toonie per litre – to live within our means, and avoid living off credit lines and cards. The days of cheap money thanks to decades of low interest rates have ended, at least for now.

The growing inflation rate also underscores the need for retirement savings. Your future you will need more, not less money should the trend towards higher costs continue on into the future. A great partner for retirement savings – one that is open to all Canadians with registered retirement savings plan room – is the Saskatchewan Pension Plan. Check them out today and see how they can help you build, a grow, a retirement nest egg!

Join the Wealthcare Revolution – follow SPP on Facebook!