The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings

The impact of the COVID-19 pandemic on Canadian households’ debt and unplanned savings varies by household income. This paper examines how differences in households’ spending patterns and changes in employment due to COVID-19 shape debt accumulation and unplanned savings. 

We use the Survey of Household Spending to document how consumption expenditures on different goods vary with household income. We group goods by how easy or difficult it is for consumers to physically distance from them. In our agent-based simulation, we construct wealth, debt and income for a set of households using the Survey of Financial Security.  We then input shocks to (1) household spending groups based on high-frequency spending data and (2) income based on Labor Force Survey estimates of unemployment and reduced hours across households. Finally, we track how these shocks affect households’ wealth and debt, accounting for Canada Emergency Response Benefits (CERB) payments and mortgage deferrals. 

Our findings show different effects on households across the income distribution. Low-income households have the highest risk of unemployment, but CERB provides a relatively high replacement of previous income. Middle-income households that lost jobs see the fastest rise in debt, as CERB only partially replaced income lost due to unemployment. High-income households have a lower probability of unemployment in this crisis and on average accumulated unplanned savings