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COMMENTARY: Canadian households aren’t out of the woods when it comes to finances amid COVID-19

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Canadian households became more financially stable during the COVID-19 crisis than they were before, a new study from Statistics Canada says.

But many of the things that helped households weather the pandemic are now coming to an end. And with Canada’s economy putting in the worst performance among G7 countries in recent months, there’s a big question mark over household finances going forward.

The StatCan study released Thursday showed that federal income supports actually helped fix some financial problems that households had before the pandemic — at least temporarily.

The share of “financially vulnerable” households in Canada fell to 39.2 per cent of the population in June of this year. That’s down from more than half the population — 50.2 per cent — in February of 2020, before the pandemic.

The share of households that are considered “extremely vulnerable” saw a particularly big drop, to 16.5 per cent in June, from 23.3 per cent before the pandemic.

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Read more: Daunting debt — What the pandemic public spending spree will mean for Canada’s post-COVID economy

While the number of vulnerable households fell, the number of stable households increased. The study found 31.1 per cent of households were considered “financially resilient” in June of this year, compared with 22.7 per cent before the pandemic.

This is largely thanks to emergency support from the government, reduced consumer spending amid pandemic lockdowns, and the fact Canadians got more serious about their finances, the study said.

In the early months of the pandemic, the total income earned by Canadians plunged by 22 per cent, but average weekly family earnings remained largely steady, StatCan said, thanks to the alphabet soup of emergency programs the federal government put into place, including the Canada Emergency Response Benefit (CERB) and its replacement, the Canada Recovery Benefit (CRB).

Nearly three in 10 Canadians reported getting some sort of income assistance from the government during the worst of the job losses in the spring of 2020, StatCan said.

Canadians also pulled back heavily on non-essential spending and started to take their finances more seriously amid COVID-19. Nearly two-thirds reported decreasing their spending on non-essential items, while the percentage who keep to a budget rose to 22.3 per cent in June of this year, up from 18 per cent last October.

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But that data masks large differences in how individual households have done.

“While some families have profited financially from the pandemic, others have experienced a considerable downturn,” the StatCan report said.

“Among the groups who reported heightened levels of difficulty were persons living in single parent households, seniors, immigrants to Canada, persons identified as visible minorities and Indigenous peoples.”

Nearly three in 10 people identified as Indigenous or a visible minority reported experiencing hardship during the pandemic, compared with 15.9 per cent of Canadians who are not in those groups, the study found.

Single-parent households saw a much larger drop in income (down 40.9 per cent) compared with couples with kids (down 19 per cent). That has to do with the fact single parents tend to be women, and tend to work in more precarious jobs, the sort that were more likely to disappear in the pandemic.

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Read more: With so many women forced out of work during the pandemic, what will bring them back?

Those lost wages were replaced by government supports, masking some of the gender gap in lost income, StatCan said.

And much of what helped Canadians weather the storm is now coming to an end. The Canada Recovery Benefit and other temporary programs are set to expire on Oct. 23, a little over a month after the election, assuming the federal government doesn’t extend those measures once more.

Households’ frugal spending habits don’t seem to be holding up either. According to Royal Bank of Canada’s consumer spending tracker, which looks at credit and debit card transactions, Canadians were spending roughly 13 per cent more on their cards in the last week of August this year compared with last, and about 22 per cent more than two summers ago, before the pandemic.

Some of that is due to inflation, not increased consumption. Canadian consumer prices were up 3.7 per cent annually in July, the fastest pace in a decade.

And the economy as a whole stumbled this spring, shrinking at a 1.1 per cent annual pace, the worst performance among G7 countries.

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So the question now is, will Canadians’ finances hold up when the support is gone? Despite all the headwinds, some economists are cautiously saying yes.

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RBC senior economist Nathan Janzen sees consumer spending heating up some more in the fall, “although that also depends on relatively high vaccination rates limiting the scope of future virus containment measures,” he said.

“Labour markets are still weak, but have improved a lot from where they were, so that will limit the income hit when these support programs expire. And, were another round of lockdowns required, those programs could well be extended in some form again.”

In a report last week, economists at the National Bank of Canada found that Canadians’ after-tax income, not including government support, is now higher than it was before the pandemic. And, with a lot of spending suspended during the lockdowns, Canadians managed to save far more of their income than normal for a while.

This “sets the stage for robust consumption and a rebound in real (economic) growth” after the slowdown this spring, economists Matthieu Arseneault and Alexandra Ducharme wrote.

Read more: Canadian economy added 90K jobs in August, marking third month of gains

Canada lost a net three million jobs at the start of the pandemic, of which all but about 250,000 have been recovered. But much of that employment gain took place in higher-earning jobs, while employment in lower-earning service economy jobs is still well below pre-pandemic levels. There are 8.7 per cent fewer culture and recreation jobs, and 2.7 per cent fewer retail jobs, than before the pandemic.

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And those additional savings Canadians piled up thanks to lockdowns aren’t actually there for everyone.

A StatCan report from earlier this week found that the bottom 40 per cent of earners in Canada didn’t manage to add any savings during the pandemic, and continue to spend more than they earn. That is, they are covering their cost of living with debt. For this group of earners, the good news was that they are taking on less debt than before the pandemic in order to live.

The middle 20 per cent managed to save a small amount, but most of that savings pile went to the top 40 per cent of earners.

All of which suggests that Canadian households aren’t entirely out of the woods yet — or not all of us, anyway. It might be a good idea to keep that new budgeting habit going, even after the pandemic.

Daniel Tencer is an independent journalist whose work has appeared at HuffPost, Postmedia and elsewhere. He is based in Montreal.

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