If there's one financial lesson that comes out of this lockdown, it should be that Canadians should be saving in the case of another global emergency.
With the most recent reports from Statistics Canada reporting a Canadian unemployment rate of 13%, many Canadians have been forced to turn to government aid, such as CERB, in order to continue making ends meet.
The recent economic downturn has forced small businesses to close, landlords to miss out on revenue, and most importantly, Canadians losing their jobs and being forced to live on $2000 a month given by the government. Some immediate problems arise from this, such as those with larger families and single parents where $2000 is barely enough to scrape by. However, the real question we should be asking is shouldn't Canadians start putting more importance on their savings?
The most recent study done by the OECD showed that the average Canadian saved 1.49% of their income, which is small compared to just under 8% saved by Americans.
As the 2008 financial crisis showed Americans the importance of savings, the covid-19 pandemic should show Canadians that life really can change in an instant, and having an emergency fund, especially post-pandemic, should now be top of their priority list.
While still on the topic of savings, it's important to note that high-yield savings account has seen their rates get dropped.
Way back in March, the Federal Reserve had cut down interest rates to zero as the coronavirus panic augmented. The ripple effect of this is now being felt by banks and their savings accounts. A year prior, banks like Goldman Sachs, Citibank, and HSBC were operating at rates over 2.25%. Today, HSBC is paying out 1.6% and Citibank is at 1.55%. Even with high-yield accounts dramatically dropping their rates since the Fed cuts and possibly having even more cuts in the future, these accounts are highly unlikely to drop to the average rate of 0.1% that normal savings accounts have, maintaining the fact that high-yield savings are still a very viable option.
Hopefully, this pandemic has taught Canadians the importance of financial literacy and the importance of smart savings. With such a volatile economic climate, there should be no doubt that it would be in one's best interests to save whatever amount they have left. Instead of spending the remainder of their government check after expenses, Canadians are much better off investing in a stock market recovery, or simply just putting that money into a high-interest savings account.
Any thoughts? Feel free to comment below