Canada’s household savings rate soared, as generous benefits met few places to spend. At least, that was the narrative. Statistics Canada (Stat Can) data shows most households saved very little in 2020. The top two-fifths of incomes are responsible for Canada’s elevated savings rate. The bottom two-fifths of households didn’t save anything at all, but were net-borrowers. They had to accumulate debt to live, despite the supposed pandemic income boom.
Canada’s Low Income Households Had A Savings Rate of -60%
The lowest quintile of households, or the bottom fifth, didn’t save — they accumulated debt. These households had a net savings rate of -61.4% (-$60.35 billion) in 2020. It’s a big improvement from the -114% (-$90.14 billion) in 2019, but they still didn’t save anything. Rising government transfers, which were double the size of income lost, only helped to offset some of the debt.
Canadian Household Savings Rate
The percent of income Canadian households saved, by income quintile.
Source: Stat Can; Better Dwelling.
The Household Quintile With The Second Lowest Income Didn’t Save, They Borrowed
The second-lowest quintile of household incomes almost saved something, but didn’t quite. These households showed a net savings rate of -3.7% (-$6.88 billion) in 2020. This means they spent 3.7% more than they made that year. Compared to the -28.0% (-$45.02 billion) reported a year before, it might feel like things are booming. However, the country would need to be in perpetual lockdown for this to last. Otherwise, this demographic is likely to fall back to pre-pandemic levels of savings.
Canada’s Middle-Class Saved For The First Time In Years
The true middle class, the third quintile of income from the top or bottom, showed some gains. Their household savings rate reached 9.1% ($22.97 billion) in 2020, up from -6.9% (-$15.63 billion) the previous year. It’s a move from net-borrowing to net-saving, which is a good sign. However, this demographic has over 20 years of net-debt accumulation to deal with. If the bump is transitory, as a result of temporary transfers, it would fall back into negative territory soon.
Canadian Household Savings In Dollars
The aggregate dollar amount of income Canadian households saved, by income quintile.
Source: Stat Can; Better Dwelling.
Canada’s Second Wealthiest Quintile of Households Saved Nearly 1 In 5 Dollars
The second-highest household income quintile, the top 60-80% of incomes, doubled their savings. These households had a savings rate of 19.6% ($66.06 billion) in 2020, up from 9.9% ($31.50 billion) the year before. The rate in 2019 was unusually elevated though, rising to the highest level since 2014. Households in this demographic represent about 31.7% of all household savings.
Canada’s Wealthiest Households Saved A Third of Their Income
Canada’s highest earning quintile saved a third of their income. They managed to sock away 33.1% ($186.61 billion) in savings over 2020. It’s a huge increase over the 25.7% ($137.38 billion) saved in 2019, but most probably didn’t realize they saved that much. One in four dollars earned by these households was savings before the pandemic. During the pandemic, these households represented 89.54% of all savings.
Yes, this combined with the second-highest quintile, is more than 100% of savings. That’s because they’re making up for the households that are accumulating debt instead.
Some evidence indicated the boost in savings was largely going to the wealthiest households. However, rising government transfers were thought to be providing some relief to low-income households. In reality, it only provided temporary relief from their surging cost of living. Once those transfers taper, as many have, three-fifths of households are likely to become net borrowers once again.
The top two-fifths of households, with nearly all of the savings, would see a small impact. A reopening might lead to some spending, but at the same time, Canada is considering targeting them with transactional taxes. For example, Canada is considering a “luxury” tax, pitched as a revenue generator. There’s little evidence these populist taxes generate much revenue, but evidence shows they reduce consumption. This would turn money ready to be injected into the economy, into more cash sitting idle in bank accounts. Depending on how steep these taxes are, they may actually partially offset increased spending on reopening.
The takeaway? Canada’s high savings rate is mostly just the wealthiest saving a little more than usual. As for Canada’s poorest households, they’re still treading water. Even with Canada boasting about the lofty savings rate households have accumulated.
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