Despite government assistance, COVID-19’s effects on personal finances in Canada could be severe
The COVID-19 could have a significant negative impact on Canadians’ personal finances. However, the time may have come to reevaluate important lifestyle choices that, since the Great Recession, have contributed significantly to the accumulation of debt.
To lessen the impact of job and income losses, the federal government stepped in and is now offering assistance to employees and businesses. Mortgage and loan payments are being postponed by banks. And some landlords put off payment of rent. Many people and businesses will benefit from these positive changes, but the financial situation of Canadians is precarious at the moment.
COVID-19 Could Push Folks to Bankruptcy
A survey of Canadians in January 2019 revealed that nearly half of respondents believed they were $200 away from bankruptcy. In addition, 45% of those polled said they would have to increase their debt in order to cover living and family expenses. Additionally, in a recent survey, over a million Canadians said they were in danger of filing for bankruptcy.
Canadians are among the most indebted people in the developed world. Prior to the Great Recession (2007) to the third quarter of 2019, the household debt to disposable income (after taxes) ratio increased by 2%, going from $1.45 to $1.77 in debt to $1.00 in income. The average household owed between $1.45 and $1.77 for every dollar of after-tax income. Americans decreased their average household debt during the same time period, going from $1.38 to $1.02 debt to $1.00 income.
The most recent statistics provided by Statistics Canada show a 2.1% CAGR for average household spending in Canada between 2009 and 2017. During that time, the CAGR for housing and transportation was 3% each. Housing, taxes, travel, and food combined made up 64% of total spending in both times. Over the same time period, health care costs increased from $2,000 to $2,500 while remaining constant at 3%.
Between 2007 and 2016, the CAGR for per capita household income was 2.5%, roughly in line with the rate of inflation.
It is more accurate to gauge the likelihood of debt repayment using the debt service ratio, or debt as a percentage of disposable income. By the end of 2019, the American ratio had dropped from 13% in 2007 to 10%. The ratio for Canadians in 2019 remained at the 14.9% record high level set in 2007.
I pray you find these guides helpful to navigate today’s unprecedented situation:
- Create a budget for the upcoming three to six months. Recognize that a budget is a liberating tool rather than a tool for restriction. It represents your best guess at the probable costs of achieving specific objectives in the future. It must never have the power to control you; you must always have control over it. To reap the rewards, you and your spouse must be on the same page if you’re married.
- Deferred loan repayments will become due in a few months, so try to set aside money for them in your budget.
- Repay your expensive consumer debts if it’s feasible.
- Never use an emergency or capital fund unless the affordability index has been taken into account.
- Don’t be afraid to ask your church or reliable advisors for assistance.
Consider staying at home if possible, pay attention to reputable experts, and distance yourself physically. Jesus gave us common sense so we could make wise decisions, but His blood covers those who follow Him. Let’s continue to abide by the golden rule and treat people the way we want to be treated.
I’m grateful to those who are defending our safety today. Knowing who is important to our society now, I hope we will respect them and treat them right both now and after we move past this phase.