How COVID-19 has thrown Canadians financially off-balance

Many feel improvements in income and expenses, but that could mask growing financial weakness

How COVID-19 has thrown Canadians financially off-balance

Depending on when you start counting, the world is seven months deep into the COVID-19 pandemic – and the pain hasn’t been the same for everyone.

Whether one looks at it through a lens of race, age, income, or wealth, emerging research shows different ways in which the outbreak has left many households crippled or devastated even as others wind up better off. That body of knowledge includes BDO’s most recent Affordability Survey, which examined the financial situations and sentiments of over 2,000 Canadians.

“The survey showed that the people who’ve been hardest hit are the ones who are self-employed or employed part-time; those who’ve had a layoff or seen a reduced salary due to reduced hours as a result of the pandemic; and those at lower income levels whose income is below $50,000 annually,” said Nancy Snedden, senior vice president and Licensed Insolvency Trustee, BDO Canada.

Canadians were facing financial challenges even before the pandemic, Snedden said: half of Canadians were living paycheck-to-paycheck, and the same number of people were less than $200 away from insolvency. Despite the government’s efforts to keep the economy afloat by providing direct cash aid to those in need, the pandemic has likely added to those numbers as many who have lost their jobs are now living on significantly less income than before.

“I think the pandemic is another one of those life events that maybe then snowballs with another life event,” she said. “It's contributing to some of the things – illness, loss of income, loss of employment, marital breakdown – that I've seen leading people to come into financial difficulty. Some who maybe have credit cards or lines of credit that they weren’t using regularly before are now possibly using them more heavily.”

For some, the pandemic has brought a calm to the storm of their finances. In the case of lower-income, part-time, or seasonal workers, government aid has represented a welcome change from their normally trickling or sporadic salary streams. Full-time employees who’ve been fortunate enough to keep their entire salary and work from home may feel their new lifestyles are more affordable as they forgo spending on a host of expenses like restaurant food, transportation, gas, and childcare.

But those instances of relief, Snedden cautioned, could create a false or exaggerated feeling of security. Those who have received CERB payments, for example, may not realize that they’re subject to taxes that weren’t withheld at the source, which could make a rude awakening in the spring next year as people file their returns. Similarly, the return to normal work conditions could present a financial shock to many as the pre-pandemic costs of daily life kick back in.

“We have to factor as well that a lot of creditors aren't collecting right now,” she said. “People may have gotten some breathing room from reduced or deferred payments on their car loan, mortgage, or credit cards, but those all ended in September as well. I think for the last number of months, it may have been easier for some, but I don't think that that will be the long-term outlook. … At some point, financial challenges will return.”

Like many financial experts, Snedden believes COVID-19 should be a cue for people to improve and strengthen their financial habits. While she used to say that budgets merit a twice-a-year look to check for drastic changes to expenses, she now urges people to do their budgeting weekly or monthly given the unusual and fluid situation driven by the pandemic. At the same time, more people now recognize the importance of emergency savings, particularly among people who might have felt their employment position were stable before the crisis began.

“I think it's really changed people's outlook on how important an emergency savings account is and just how important it is to really scrutinize your budget, to make sure you're making room for that type of saving,” she said.

And as more Canadians than ever are now able to work online and at home, they’re increasingly able to consult the internet, friends, and family on questions of personal finance. In the case of people in debt, Snedden endorses online research as a good first step for self-education and learning what questions to ask, but strongly recommends consulting a professional early to make an informed decision and find the best way forward for a specific person.

“As a Licensed Insolvency Trustee, I hear oftentimes from people, ‘I really should have come to see you two years ago. I thought things would change,’” she said. “At that point, they've often exhausted their savings and depleted their RRSP contributions, not knowing that RRSPs are among the things that are protected when you’re making a proposal for bankruptcy. Like I’ve said, it sometimes can be a stress relief just to talk to a professional and see what the best options are for you and your family.”


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