What the Canada Household Savings Rate Increasing Means for Families
Canadians are saving a lot less over the last decade. That’s all changed with COVID-19. The household saving rate is up sharply in the first half of 2020. In this article, we’ll look at what the saving rate increasing means for Canadian families.
First and foremost, an increased saving means that Canadian families are better prepared for financial emergencies. Year after year surveys find that half of Canadians are living paycheque to paycheque. For many of these Canadian households, they’re one paycheque away from not being able to pay the bills. I don’t know about you, but I don’t think that’s any way to live. It can be pretty stressful to live this way.
With an increased household savings rate, this means that it’s easier for Canadians to save for a rainy day because when it rains, it often pours. With the extra money you’re saving from COVID-19, you can set up or replenish your emergency fund.
Financial experts often recommend having three to six months’ living expenses saved away in an emergency fund. If you were hard hit by the COVID-19 pandemic this time, saving money in an emergency fund will ensure you’re better prepared the next time a financial crisis like this happens.
Being Better Prepared for Job Loss
Something else you can be better prepared for is job loss. Globalization has made it so that jobs and careers that were once steady are no longer steady. The COVID-19 pandemic has only exacerbated the situation.
If you’re in an industry that was hard hit by COVID or you’re in an industry that would be hard hit by recession, it’s a good idea to prepare ahead of time. This could mean building a sizable emergency fund and retraining yourself for a possible change in careers.
With a sizable emergency fund, you won’t have to entirely rely on government benefits. Government benefits like the Canadian Emergency Response Benefit and Employment Insurance may take weeks to kick in. In the meantime you’ll need to keep paying the bills. This is where those extra savings will come in handy. You can use them to stay on top of your bills until your government benefits kick in and avoid hurting your credit score.
You can also use the extra savings to be proactive and go back to school. If you’re in an industry that’s been hard hit by COVID and you fear losing your job in the near future, you can prepare by going back to school and upgrading your skills or training for a completely different career or industry that will be in demand in the post-COVID world.
With the higher household saving rate, you could use the extra money towards accomplishing short-term goals sooner. Short-term goals are defined as goals you’d like to accomplish in less than five years. Examples of short-term goals include buying a new car, going on a family vacation, wedding planning and home renovations.
Buying a new vehicle doesn’t come cheap. As such many Canadians decide to take out a car loan or car lease. While a car loan or lease helps you drive off the lot now in the car of your dreams, it has a price. Mainly you’ll be paying thousands in interest over the life of your loan or lease. Also, with a lease you’re only renting the car and won’t even have an asset at the end when your lease expires.
By saving the money ahead of time you can instead buy the vehicle in cash and own it free and clear. You don’t have any car payments to worry about either.
Another short-term goal to save towards is a family vacation. I know that we can’t really travel right now, but there’s nothing stopping you from planning a dream vacation once we can finally travel again. If you’re used to charging family vacations on your credit card and paying them off later, saving for a vacation ahead of time will help you pay for that dream vacation later on without incurring a lot of debt.
Do you not want to wait until later to take a vacation? Why not use the money to take a staycation? There’s nothing stopping you from travelling within Canada. A staycation can be a great way to unwind from all the stress of COVID. You might also be able to score a deal. Many touristy places like Niagara Falls are hurting for business. You may be able to enjoy something you’d normally pay a lot more for at a steep discount.
Planning a wedding is another short-term goal you can work towards. Maybe you were planning a dream wedding before COVID. Maybe you’ve been spending so much time together with your partner that you’ve decided to tie the knot during COVID times. Regardless of the timing, you can start planning and saving towards your wedding. Maybe you want an elaborate wedding with plenty of guests. In that case you’ll have plenty of time to save money, as it looks like it will still be a while longer until a vaccine for COVID is available. If you don’t want to wait, you can use the extra savings to host a smaller, more intimate wedding affair. The choice is yours.
Speaking of debt, with the extra money you’re saving, you could always pay off consumer debt. Focus on the high-interest debt like credit cards and payday loans first. Once you have those under control, then you can focus on lines of credit and student loans and then finally mortgages. By paying down those debts, you can help keep your credit score in good shape.
Lastly you might want to look into doing renovations. If there are costly renovations you’ve been putting off, like redoing your roof or kitchen, why not use the extra money you’ve been saving towards these renos? This will add value to your home when you decide to sell it, without adding debt to your family’s balance sheet.
If you feel like your short-term goals are well under control, that’s when you might consider long-term goals.
Buying a home is the perfect example of a long-term goal. While you probably can’t save the down payment for a home in six months, by putting an aggressive savings plan in place with the extra savings from COIVD, you can reach your down payment savings goal sooner.
Another long-term goal to aims towards is an early retirement. Unless you’re one of the lucky few who has a gold plated pension plan, you’ll need to save towards retirement. With the extra savings from COVID, you can get a big head start and perhaps realize that dream of “freedom 55.”
Despite the Canada household saving rate going up overall, Are you struggling to save? Could you use a helping hand ramping up your household saving rate? We’re here to help. Contact our offices today for help putting in place strategies to save a lot more money going forward.
Related to: Canada Household Saving Rate