Canadians have an epic pile of savings accumulating, but it’s not as big as most economists think. Oxford Economics‘ Tony Stillo took a deep dive into the household savings rate this week. The firm found the gross numbers exaggerate the total that can actually be used. Further, wealthier households represent more than half of the savings accumulation. In the end, only 13% of the epic pile is forecast to actually be used in the near future. Talk about a letdown.
Canadian Household Accumulated $184 Billion
Canadian households accumulated a big pile of savings since the pandemic started. The firm estimates $184 billion in gross excess savings from Q1 2020 to Q1 2021. The second quarter of this year should add even more, due to the third-wave lockdowns. It may sound like a lot, and you may have heard the “revenge spending” narrative. However, it may not be so impressive.
Only $100 Billion of Those Savings Are Liquid
First off, the liquid excess savings are much smaller than the gross excess savings. Only $100 billion are actually liquid, by the firm’s estimate. Their analysis shows households used $22 billion in capital to reduce their debt. Another $62 billion has already gone to housing and equities.
Wealthier Households Represent More Than Half of The Savings
Wealthier households represent most of the savings, which means less will be spent. Stillo’s team estimates over half of the savings are from the top two income quintiles. It’s a big detail since wealthier households have a lower marginal propensity to consume. In plain English, the households with savings already have few buying restraints. Additional cash only provides a minimal influence to increase consumption.
Canadian Excess Savings By Income Quintile
As a result, they see only a tiny sliver of household savings entering the general economy by the end of 2022. They forecast just $24 billion of the $184 billion in gross excess savings will be used. It works out to 13% of the pile everyone thought was going to lead to the revenge spending spree. Probably a little disappointing for economists who thought it would be blown on reopening.
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Better 13% instead of 80 or 100% which would lead to the collapse of the Canadian dollars purchasing power. Remember Weimar?
huh? Weimar was caused by a savings glut. So only 13% of it spent would be a savings glut of 87%, which is the point you were trying to prove, but accidentally read it wrong and proved the opposite.
Savings glut? Read some more. Germans saved their paper marks under the mattress and when the Ruhr was occupied they spent it all resulting in the hyperinflation.
You should probably actually read about Weimar before using it as an example. It had a high savings rate before they started printing, and that’s why inflation was used. They needed to unlock the capital to keep the economy going.
High savings precede periods of uncontrollable inflation.
You’re wrong, they started printing because of the pent up demand after 20’ and 21’, Germany was still in a state of war in 1919,1920 because of communist terrorism and soviet and polish aggressiveness to their rear. When things cooled down the Germans began spending their savings which lead to uptick in prices. The situation soured when France occupied the Ruhr region which was Germany’s industrial hub. What inevitabley happened was a further increase in prices and the government printing more money so wages could keep up with inflation. The rest is history which you and the other poster lack knowledge with.
Nah. They printed money to stave off deflationary pressures, resulting from high debt loads from the war, and people unwilling to spend due to mass strikes and a lack of housing affordability.
yes, we are all 100 years old and remember it very vividly
History repeats itself. All we need now is a big ol’e war.
At BoC press conference right now, Tiff just said he fully expects the recovery to be lead by the consumer. Expecting other economic growth from exports to increase based off of US economic demands to drive business investment and confidence.
Also, he thinks labour shortage that may lead to wage increases impacting inflation is transitionary not broad based.
Marginal propensity to consume is something that’s under disccused. Especially in the narrative of it being used as a downpayment. The top two quintiles are already homeowners if they aren’t under the age of 40. Additional savings don’t convert into new homes.
estimates at a macro level like this are pretty much useless…
Macro estimates are useless for determining how the economy functions at the macro level? Canadian public school might be free, but I encounter a lot of people that prove you should just pay for it.
Rich people are far too clever to blow all their money on consumer goods. They would just buy what they want out of normal income and so should everyone else.
Studies of the wealthy consistently show that they don’t just sit on piles of liquid cash. The wealth is in the form of investments, which fuel and grow the economy. So while they did save a lot, it’s been spent on investments rather than consumer goods. Technically each dollar is still going back into the economy, it’s just being more productive first, unlike the broke people who want to eat their money and then complain about the wealthy who used it wisely.
This is patently untrue. The velocity of capital has never been lower. Middle class people that think they’re rich think the rich are investing. Family offices and big portfolio managers are sitting on epic amounts of cash.
When the “wealthy” “invest” they give it to their money manager, who will buy or sit on cash. Even Buffett was a net seller, and is sitting on cash.
Homes are for living in, not property ponzi n investa-bajillionair .. Stop the Investors, Stop the Slumlords, stop the REIT .. Stop the upper and give Canada back to the mid and lower.. End of story..