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A market meltdown is one thing. The current one, taking place in the midst of a frightening health crisis, makes past episodes of stock market mayhem seem minor by comparison.
But it’s not just investment portfolios being beaten witless (albeit a little less so recently).
Many of us have seen our livelihoods temporarily disappear.
Like just about everything else in our lives in recent days personal financial management has changed dramatically — and not for the better in most cases.
"Things are shifting quickly and we just are trying to get our sea legs on some of the basics," says Evelyn Jacks, president of the Winnipeg-based Knowledge Bureau, which provides learning resources on personal finance for professionals and the public.
A recent Angus Reid survey found 64 per cent of Canadians are extremely worried about the economy with about two in five worried about their own situation now.
And close to half noted they were concerned about their employers’ ability to keep paying their wage.
This anxiety will likely grow as measures to stem COVID-19’s spread temporarily interfere with demand for goods and services, probably leading to more layoffs.
Personal finance educator Kelley Keehn, a consumer advocate for FP (Financial Planners) Canada, says a lot of people are in financial survival mode right now, struggling to find cash for basic expenses.
At the same time, they’re looking for ways to cut costs, including putting a hold on loan payments when possible.
"The banks stated they would give some support in deferral of mortgages, loan payments and interest on credit cards, but this is on a case-by-case basis," she says.
If your work income is gone, seeking loan payment deferrals is likely a must. Financial institutions went on record earlier this month they will provide payment deferrals up to six months. Shortly after media reports revealed some people applying for deferrals were being denied. That appears to have cleared up, but Keehn says anyone still hearing ‘no’ should not take it as the final answer. Keep calling back until you get the help you need, she adds.
Even without talking to your lender about a multi-month deferral on your mortgage, most homeowners’ mortgages allow them to skip one payment annually without penalty.
The current need for deferrals is a symptom not just of the financial pressure of the pandemic. It is also a painful reminder of the failure to practise a basic tenet of financial planning.
"This very quick and fluid crisis tells us that having socked away money for a rainy day is always a good idea," Jacks says.
Indeed having enough savings to cover three to six months of household costs would come in handy now.
Without that money set aside, the next source of cash flow in a pinch is a line of credit. Keehn says it’s likely a lot of homeowners are leaning on their home equity now and for weeks to come.
Others may turn to credit cards, which aren’t the best option. But they’re not the worst either.
That would be payday loans.
"I would hope and pray that payday loans would be the last resort Canadians would go to just because the interest rate is so high," Keehn says.
These short-term lenders typically charge an annual interest rate exceeding 300 per cent, and it’s hard to find a worse choice to meet a cash crunch.
A last resort is withdrawing from the RRSP. The problem is "once you take the money out, that contribution room is gone forever, and you could be taxed heavily," Keehn says. Furthermore with markets in a downward spiral, you’re likely drawing on your investments at the worst possible time.
Government — at all levels — has also stepped in to help.
● Manitoba announced freezes on rent increases and a postponement on evictions for unpaid rent until May 31.
● Utilities providers are suspending shut-offs for non-payments.
● The feds, after initially offering a mishmash of programs, have now rolled out the Canada Emergency Response Benefit (CERB), providing $2,000 a month for up to four months for workers who have lost income due to the pandemic. You can apply in early April at a soon-to-be-launched portal on the Government of Canada website. Those who qualify for EI, EI sickness (you have COVID-19) and caregiver benefits (caring for someone sick) can also still apply for EI to seek more immediate relief.
● Low- and moderate-income families will also see a boost in their Goods and Services Tax credit (GSTC) and Canada Child Benefit in May. The GST credit will be about $400 for single individuals and almost $600 for couples. And the child benefit will provide an additional $300 per child for the May payment.
● Additionally the tax-filing deadline for individuals has been moved from April 30 to June 1. Jacks says if you expect to receive a refund, it’s best to file as soon as possible. "The average refund so far is coming in at more than $1,800," she says. "For some people that can pay for rent for a month or two."
● And if you owe taxes, you now have until Aug. 31, as opposed to May 1, to pay without incurring interest and penalties. Even in that case, Jacks suggests filing soon to allow you to budget over the next few months to be able to pay the tax bill. (Note the June 15 filing date for self-employed individuals has not yet changed.)
One last point of advice is to look to your financial adviser, accountant or other trusted professional for assistance, Keehn says.
"This is the time to call on your network to get all the help you can get, and see if there are any blind spots—things that you may be missing."
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