Wallet worries

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This article was published 01/05/2021 (1593 days ago), so information in it may no longer be current.

The pandemic hasn’t turned out to be the financial calamity it was first thought to be.

At least, not for everyone.

In fact a recent BMO study — Real Financial Progress Index — launched this year found almost four in 10 Canadians are feeling more secure this year than last, and more than three-quarters surveyed were optimistic about their financial future.

Yet despite the positive findings, many were still feeling a lot of financial stress, says Gayle Ramsay, head of everyday banking and customer growth at BMO.

“And COVID was the No. 1 reason on the list with 55 per cent of respondents.”

That’s followed by fear of unknown expenses at 43 per cent, their overall financial situation at 39 per cent and housing costs at 35 per cent.

Other sources of stress were credit card debt, keeping up with monthly bills and student debt among others — only to a lesser extent.

The big connector in the last year, of course, has been the pandemic, which has exacerbated existing financial problems for people already struggling, she says.

Often, it’s because they lack the emergency savings to deal with bumps in their finances.

“If you have something that comes up unexpectedly, and you don’t have something set aside for what used to be called a ‘rainy day fund,’…that’s going to cause a fair amount of anxiety, right?”

Another recent study looking at financial stress during the pandemic confirms this notion as well.

But it also points to the effect of a K-shaped recovery with many Canadians, unable to work from home or who have lost their jobs, feeling much more money stress.

Alex Bierman, an associate professor of sociology at the University of Calgary, is one of the co-authors of the research.

“What seems to be happening is experience of financial stress is not uniform,” he says, about the findings of the survey of 2,500 Canadians.

“People who were economically disadvantaged prior to the pandemic are much more likely to experience economic stress during the pandemic.”

The reasons are many, he adds. Low income Canadians typically have been hit hardest by the pandemic given they typically work in occupations where they cannot work from home, and in industries most likely to be shuttered in lockdowns.

Another finding is that Canadians with health or mental health problems prior to the pandemic also experienced higher levels of financial stress.

“This is likely because when people are already experiencing compromised health or mental health difficulties, they may have fewer reserves to cope,” Bierman says.

While the study did not specifically look at government supports like the Canada Emergency Response Benefit (CERB), he notes these programs likely helped but also presented challenges.

Executive director of Community Financial Counselling Services John Silver in Winnipeg confirms many of clients seeking help right indicate higher stress from CERB “over eligibility… and how they may have to repay it.”

Additionally, he notes other clients “have maxed out their credit cards” to deal with pandemic problems like job loss.

In fact another study by the Canadian Payroll Association, involving Western-Laurier Financial Data Analytics Laboratory that used machine learning techniques to examine the effects of money stress, found less correlation between income and stress, and instead higher stress levels from an inability to deal with unexpected costs.

“An inability to deal with these brief hiccups is a big symptom of financial stress if you report that you would have a hard time meeting your obligations if your paycheque was delayed for a week,” Adam Metzler, associate professor of mathematics at Wilfred Laurier University, and one of the authors of the study published a few weeks prior to the pandemic.

“I guess there is maybe a lot of people making a lot of money, but maybe they’re in a house that is too expensive for them or drive a car they shouldn’t be.”

The lab has also analyzed more recent data from the pandemic, and early findings suggest people are feeling better off and were saving more.

“But they were still really financially stressed because it’s more like a forced savings from the current conditions.”

Metzler further notes, however, the lab’s discoveries and those of the work co-authored by Bierman are not as much at odds as they might appear. The Wilfred Laurier research focused only on full-time workers, while the University of Calgary one examined a broader range of people.

Furthermore, unexpected expenses are more likely to cause stress for lower income earners because they have fewer resources to deal with them.

Ramsay says every Canadian should take steps to build up savings to deal with the unexpected while noting it can be very challenging to do amid all the other demands on the wallet. But working with a financial planner can help, she adds.

“It’s almost like the physical checkup you would have with your doctor, but it’s taking a look at your spending, debt levels and cash flow to find opportunities to cut costs and save money.”

Still, Bierman says research suggests this is likely a tall order for individuals in precarious economic situations.

In turn, governments should examine more permanent economic supports like a basic universal income.

“Without this… people risk being permanently disenfranchised economically.”