The working person’s pandemic quandary: What to do with all the money being saved in locked-down economy?

The biggest talking point in pandemic personal finance for those lucky enough to have kept their job is how much money they’re saving.

People are almost giddy about their savings. If they have a couple of children, they could be saving thousands a month on daycare and activities. If physical distancing has kept them away from malls, restaurants, bars, concerts, events and vacations, they could easily be saving hundreds of dollars monthly.

But the Great Canadian Save-a-thon is starting to end. The latest COVID Consumer Spending Tracker from RBC Economics says spending is down 13 per cent from the same time last year, a big improvement from the 37 per cent year-over-year decline of late March. “As lockdown shock wears off, Canadians are opening their wallets wider and varying their buying,” the report says.

Normalizing our spending needs to happen for the good of the economy. But don’t spend that pandemic savings windfall without first considering all the financial security it could bring you if deployed smartly. While the recent rise in consumer spending is an encouraging sign of economic resilience, we are still looking at months of uncertainty ahead.

The sort of spending increases we’ve seen lately tell us people are keen to do normal things. The RBC report said entertainment and art spending was down 37 per cent in mid-May, compared with a 58-per-cent drop in April. Restaurant spending has been rising as takeout and delivery options become more plentiful. Spending on clothing, and also gifts and jewellery, picked up momentum in early May.

The pandemic has forced people with steady incomes to save more. Now, as people begin to spend more, it’s time to take stock of what’s been accumulated to date.

Building up your emergency fund is an obvious use of your savings from physical distancing, even if your job has been unaffected so far. The first round of layoffs in the pandemic came as a result of needing to close businesses. We could see a second round later if the economic rebound is slow and companies cut jobs to adjust.

Consider adding a temporary add-on to your base emergency fund for the next 12 months. If you don’t use this surplus by next summer, redirect it to your biggest financial need of the moment. By the way, your base emergency fund should give you three to six months of financial self-sufficiency.

Long before the pandemic, surveys on stress levels consistently showed how bothered people were by the debt they were carrying. The challenge of debt reduction in normal times is that it requires sacrifices – you have to stop spending as much at malls, restaurants, bars, concerts and other events.

Physical distancing has done something for indebted people with jobs that they would not or could not do for themselves – reduce their spending so they could build up funds to pay down their credit cards, lines of credit and loans. Identify your debt with the highest interest rate and chop it down.

Here’s an argument for adding your pandemic savings windfall to your retirement fund. Even if economic activity bounces back in the months ahead, there’s potential for changes in the workplace that could affect your future capacity to save for retirement. You may not stay as long as you thought in that job with a pension; career advancement with pay hikes could be affected in the work-at-home world, where bosses don’t see the good job you’re doing.

Putting more into retirement saving is also a way to offset the risk of lower investment returns in the near term. A slow recovery from the pandemic will keep interest rates low, and it could put a cap on how much further stocks will rise in the near term from their March lows. Returns from a balanced portfolio could be depressed for a while.

Parents, think about using your pandemic savings on your children. The recession we’re now into is particularly hard on postsecondary grads who are looking for their first jobs. These grads may need a parental financial assist to subsidize rent or other living expenses.

If you have younger children, invest in a registered education savings plan. An RESP is the best protection for young people graduating into a tough job market with student loans to repay.