They're using freed-up cash to do everything from fast-track what were once long-term financial goals…
“Saving money is really the only thing keeping me sane,” Mary said. “I’m saving way more than I was before.”
While millions of Canadians have lost their jobs and are struggling to get by during the COVID-19 economic shutdown — with many being forced to tap their nest eggs for rent and groceries — another large swathe of the population is experiencing a financial windfall, of sorts.
These are the Canadians who are still comfortably working and bringing in the same income as they did pre-pandemic, but who have seen their expenses forcibly slashed. With travel halted, they cannot spend on vacations. Strict social-distancing measures have stopped them from spending hundreds of dollars per month at restaurants, bars and gyms. And with many working from home, gas and other transportation costs have become negligible.
Mary, for example, has freed up $900 per month by eliminating her public transit costs of $140 per month, and $760 for a personal trainer and gym membership. On food, she’s easily saving a few hundred, she said.
Without these items diverting their income, financial advisors say Canadians like Mary are using freed-up cash to do everything from fast-track what were once long-term financial goals to bolstering their investment portfolios.
“The longer this goes on, the bigger the benefit this is going to be to household savings,” said Joshua Hosein, vice president of financial planning at BMO.
The U.S. has already seen its savings rate rise, with the Bureau of Economic Analysis reporting that it surged from eight per cent in February to 13.1 per cent in March — the highest level since 1981. The Canadian equivalent of that data won’t be known for months, but Capital Economics senior Canada economist Stephen Brown suggests it could climb from a measly three per cent in February to as much as 12 per cent in April.
The longer this goes on, the bigger the benefit this is going to be to household savingsJoshua Hosein
Hosein, who is based in Calgary, said his clients are putting away at least half of the new cash they’ve freed up. The majority are using the new opportunity to build up emergency funds. Some of his clients, particularly those who work in the oilpatch, fear another wave of layoffs is coming in Alberta and want to ensure they’re protected. Others are even building emergency funds for their children, who are working and in their 30s, in the event they get laid off.
The other 50 per cent of their newly freed up cash flow is being earmarked for spending projects, with many clients moving up financial goals that were originally two to five years away. Some are building up downpayment funds faster than they initially intended so that they can purchase a first home while others are preparing to accelerate plans to buy their second. On a smaller scale, clients who were planning to improve their existing home in the distant future have fast-tracked plans to redo landscaping and buy new furniture sets.
And once those projects are out of way, he said, there won’t be anything else for them to spend on, meaning that they’ll be free to divert even more cash to savings.
In Vancouver, Bily Xiao, the president of Mobius Financial Planning sees a similar trend with his clients. “Cash has always been king,” Xiao said.
Many of his clients are small business owners who have seen their income descend. Their savings rate, however, is still increasing because of a cut to their discretionary spending. They’re not shopping for clothing, cosmetics or technology anymore, he said. Given their situation, the priority is diverting the cash into an emergency fund and allowing it to accumulate.