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.
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list
Food waste is getting worse
A new survey shows the amount of food thrown out by Canadian households has gone up significantly since the pandemic began. Hasn’t everyone been complaining about rising food costs?
Will big houses be unsellable in the decades ahead?
A U.S. housing expert lays out a case that millennials and Gen Z prefer smaller, more compact homes in an urban setting, not mega-homes in the suburbs. He predicts plunging demand for big suburban homes just as aging boomers try to sell them in the decades ahead.
Humans versus robots
Seen this TV commercial from the robo-adviser Questrade? It really bugs investment advisers, one of whom has written a couple of blog posts on the topic. I’m including the latest because it’s an honest, intelligent attempt to help people compare the experience and benefits of working with a human adviser and a robo-adviser.
Bank accounts for business
A detailed comparison of what major banks offer in bank accounts for businesses.
Ask Rob
Q: You often mention virtual banks or credit unions with higher rates and I wonder if you move your money from one financial institution to another often to benefit from the higher rates.
A: I’m pretty busy with my job writing about personal finance, so I like to keep things very simple in my own financial life. I pick banks with good interest rates and keep my money there. I very rarely move money around to get a better rate. I would rather have a very good rate all the time than jump through hoops to occasionally get an excellent rate.
Send us your money questions. Globe and Mail personal finance editor Roma Luciw will tackle questions about money and parenting, and I’ll tackle the rest. Sorry we can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Here’s a fee calculator that will help you understand the impact of fees on your investment returns. As I noted in a recent column, close to half of investors don’t seem to understand that they pay fees, and that fees eat into their returns.
The money-free zone
An insurance company recently ran a contest where kids were asked to draw their future dream home. Here are the 10 winners – I liked the house with the rooftop rock-climbing wall.
More Rob Carrick and money coverage:
Subscribe to Stress Test on iTunes or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: How to survive the gig economy • How to get out of debt • Is now the right time to buy a house? • Crisis-proof your finances • Does investing change during a pandemic? • Can you afford to live downtown? • The cost of kids • Should you move back in with your parents?
- ✔️ A 10-point pandemic personal finance checklist: Create a “wartime” family budget; stop worrying about bank deposits; clean out your big-bank savings account; get relief on car payments; get preapproved for a mortgage; WFH? Save $1,000 a month; save, save, save; build resilience by not anxiety-buying; consider the cost of mortgage deferrals; get ready for the second wave of financial distress.
- 📈 Investing: The case for a tight portfolio of big blue chips dividend stocks; robo-advisers beat human advisors (and they’re thriving), why online banks that are better than the branch; is it time to invest your 2020 TFSA; don’t get your mortgage at a bank; why it’s so hard to invest in preferred shares; stock up on stocks to retire early; and are you following the 10-year rule with your investments?
- 💰 Saving: Food waste is wasted money; why you might regret that SUV and find out if CAA is worth it; juice your PC Optimum points; how an ex-Bay Street lawyer got out of debt; blindly easy tweak to your retirement investments to survive economic downturn; should you buy that latte?
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
