February 27, 2023

High interest rates, falling real estate prices create a nation of savers

Remember the pandemic-era prediction that once things were “back to normal,” we’d all be madly spending through our stash of cash — built on years of being locked down with nothing to spend on?

Well, not so fast, reports the Sarnia Observer. We’re no longer facing COVID lockdowns and travel restrictions, perhaps, but the saving trend started a few years ago is continuing.

Canadians (particularly the top 40 per cent of earners) have now amassed $350 billion in savings as of the third quarter of 2022, compared to “$300 billion at the outset of the pandemic,” the Observer reports.

That’s a 28 per cent jump in the savings rate for the group, the newspaper adds.

And the trend towards saving is likely to continue, the Observer notes, because “consumer confidence has been shaken… (that) typically leads to more saving, not less.”

What’s got people gun shy, the newspaper explains, is the fact that “more than $1 trillion in assets were wiped out over the second and third quarters of last year as financial markets and housing retrenched.” Rising interest rates “pushed the average home price down by 12 per cent,” the Observer reports, and the S&P/TSX Composite Index was down by 8.7 per cent in 2022.

In plainer terms, both housing prices and stock markets took a bit of a haircut at around the same time.

Paradoxically, the newspaper adds, the top 40 per cent of earners now have more money — many are putting their dollars in safe, high-interest savings accounts and term deposits — but are feeling less wealthy, as the value of their real estate and financial holdings falls.

The news is not all bad, the Observer continues.

Even though savings increased, there was a bit of an uptick in discretionary spending when COVID restrictions wound down, the article notes. That led to the creation of 381,000 new jobs in 2022, and wages are up by about 5.1 per cent, the Observer reports. The article concludes by warning of a continued decline in spending growth if cash keeps getting hoarded.

It’s not surprising to see a return to Canada being a “nation of savers,” as it once was years ago when interest rates were even higher than they are now. Let’s not forget that after double-digit inflation and mortgage rates at the end of the ‘80s and into the ‘90s, we had decades of very low interest rates. Low rates are bad for savers, and great for borrowers. Now the teeter-totter has tipped the other way.

If you’re in saving mode, don’t forget about the need to put aside some cash today for your future self to spend in retirement. If you don’t have a retirement program at work, and are worried about retirement investing, the Saskatchewan Pension Plan (SPP) may offer the solution. SPP invests your contribution, at a very low cost, in a pooled fund managed by experts who are focused on the long-term. SPP will grow your savings into future retirement income — check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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