Pattie Lovett-Reid

Chief Financial Commentator, CTV

Follow|Archive

My first thought after reading the Bank of Canada statement is: We can't have it both ways. 

We can't be worried about household balance sheets while at the same time hoping Canadians will go out and spend in an effort to help our economy grow. 

Throughout the pandemic we have witnessed bank accounts swell in part due to restrictions and literally few options to spend our money while at the same time delinquency levels on outstanding debt have subsided. As well, those living close to the margin after benefiting from government relief programs have a little financial flexibility not experienced in a very long time.

This is not a bad thing. Financially speaking the pandemic provided a soft landing for some households.  

However, prior to the pandemic the Bank of Canada cautioned repeatedly about the debt levels of Canadians escalating and not being sustainable especially in a rising interest rate environment. In fact, the growing debt levels were considered to be a significant risk to the Canadian economy. It literally took a pandemic for cash strapped Canadians to rein their spending.

Building up savings didn't last long for all, as Canadians have been using savings for down payments with real estate becoming a pillar of strength in an otherwise wobbly economy. Clearer ideas of how and where we want to live drive demand to outstrip supply coupled with fear of missing out have continued to drive housing sales and prices higher. So much so that Royal LePage has revised its fourth-quarter home-price forecast to a year-over-year gain of 16 per cent.

My fear is we are at another financial inflection point. 

Two of the concerns the Bank of Canada has warned about in the past – high debt levels of Canadians and extraordinarily high real estate costs – are now the very two areas that could propel the Canadian economy higher. 

It appears the Bank of Canada is now counting on households to spend 20 per cent of their excess savings in the next few years to help prop up the economy. 

This isn't new, economists have been saying this for months. Pent-up demand coupled with high savings rates will drive growth. What is new is that the Bank of Canada is now on board factoring in household spending to support growth projections.

Now to be fair there is pent-up demand for goods and services, travel and basic socialization. And I do believe those who can afford to spend should spend – our economy needs that to happen. However, my fear is that those who really can't afford it will be doing some of the heavy lifting and the lessons learned about distinguishing between needs and wants learned during the pandemic will soon be forgotten. We have seen reports highlighting Canadians will spend on what they can't afford because we are in a low interest rate environment. 

The low interest rate environment will not last forever. 

In a perfect world, the Bank of Canada will encourage Canadians to manage their debt levels, provide enough stimulus until signs the economy can continue to move forward and we will see a softening in the real estate market.  

However, also in a perfect world we won't forget the financial freedom that has been experienced during the pandemic.

It is OK to be a little frugal, buy a smaller home than you think you can afford, spend more money on experiences than things, work more and follow the crowd less. 

In other words, follow the golden rule and live below your means.

Consumers don't have to single handily prop up the Canadian economy. It is about balance. Just because everyone else is out there spending doesn't mean you have to as well. Let those who can afford it do the heavy lifting for now.