BMO Economics suggests that the North American financial system could be protected against a potential recession in 2023 with the aid of significant savings accumulated by households in Canada and the United States.
The relevance of yearly savings rate in the economy
Savings play a pivotal role in an individual’s life, and it’s no different for the economic ecosystem. It’s the savings that help finance investments, whether in a business, a house, or an infrastructure project.
A high savings rate means that a country has more money to invest, which can lead to a rise in economic growth. For example, if people save more, banks will have more money to lend, which means that businesses can borrow at lower interest rates to finance their ventures. This leads to more investment, job creation, and the country’s economic growth as a whole
Canada National Savings Rate presently is lower than the long term average of 5.99%.
According to Ycharts, Canadian savings rate is currently at 5.80%, much less than the savings rate of 8.70% in the last quarter and also lower than the savings rate of 9.00% recorded last year
Last Value 5.80%
Latest Period Dec 2022
Last Updated Feb 28 2023, 08:37 EST
Next Release May 31 2023, 08:30 EDT
Long Term Average 5.99%
Average Growth Rate 10.02%
Value from Last Quarter 8.70%
Change from Last Quarter -33.33%
Value from 1 Year Ago 9.00%
Change from 1 Year Ago -35.56%
Frequency Quarterly
Unit Percent
Link:
https://ycharts.com/indicators/canada_national_saving_rate#:~:text=Canada%20National%20Saving%20Rate%20is,long%20term%20average%20of%205.99%25.
Looming effects on the Canadian National Savings Rate
Canadian households should brace themselves for a rising cost of living, with prices continuing to increase, albeit at a slower pace due to a decline in inflation. Unfortunately, interest rate hikes delayed until 2022 will put a tighter squeeze on household finances, with debt payments projected to reach a record-breaking 16% of disposable income by the end of 2023. This will hit lower income households the hardest, who already have less savings to rely on, while higher-earning households will likely continue saving more amidst surging interest rates and a pullback in housing and financial markets. Even higher-earning households are feeling the impact of the pandemic on their net worth, which is no longer driving spending growth.
When asked about the financial goals for 2023, saving more money was the most popular resolution with 55% of participants willing to save. Paying off debt and sticking to a budget were also common goals, with 42% and 34% of people choosing them, respectively.
However, the report also found that many Canadians are still dealing with debt from their holiday purchases. About 27% of people said they will still be paying off their holiday expenses in 2023. Some people are choosing to carry a balance on their credit card, while others are delaying paying their bills.
Financial constraints faced by Canadians
In fall 2022, a survey found that 35% of Canadians had difficulty meeting their financial needs, and 26% of them could not cover an unexpected expense of $500. Women reported this difficulty more often than men. Additionally, many Canadians were very concerned about affording housing or rent, with 44% expressing this worry. These findings are based on the Canadian Social Survey on Quality of Life and Cost of Living, which was conducted to understand how inflation was affecting Canadians.
The Consumer Price Index (CPI), which measures the average change in prices for goods and services, increased by 10.9% in 2022, which is the largest increase since 1982. Transportation, food, and shelter saw the largest price increases. However, not all individuals were affected equally by these rising prices.
Consumer Spending 1233374.00 1227135.00 CAD Million Dec 2022
Disposable Personal Income 1561752.00 1526100.00 CAD Million Dec 2022
Personal Savings 6.00 5.70 percent Dec 2022
Consumer Credit 727092.00 724120.00 CAD Million Feb 2023
Private Sector Credit 4638279.00 4618799.00 CAD Million Sep 2020
Households Debt to Income 180.70 183.10 percent Feb 2023
Households Debt to GDP 102.64 103.70 percent of GDP Dec 2022
Table link: https://tradingeconomics.com/canada/personal-savings
Canadian Optimism stays undefeated despite financial uncertainty
A study by the Bank of Montreal’s Real Financial Progress Index found that 43% of Canadians changed their financial resolutions before the new year due to rising prices. However, the majority (64%) are still optimistic about achieving their financial goals in 2023, with 39% somewhat optimistic and 25% very optimistic.
As people get older, they become less optimistic about their financial situation improving in the next year. For example, only 7% of people aged 65 years or older believed their financial situation would improve in one year. Interestingly, even though some racialized individuals expressed financial vulnerability and worry, over 25% still believed their financial situation would improve within a year.
As King rightfully quoted, “We all make money mistakes,” “Rather than hide our errors, use this hard-won knowledge to motivate you. Last year was tough, so use this new year as a fresh start.” So, keep your wits wide awake, hang tight and let life take its course.
