The personal financial impact of COVID-19 in Canada could be harsh despite government aid
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| The personal financial impact of COVID-19 in Canada could be harsh despite government aid |
The impact of COVID-19 on Canadians' personal finances could be disastrous. But now may be the time to make some tough decisions in order to restore the crucial lifestyle habits that have resulted in massive debt accumulation since the Great Recession.
The federal government has stepped up its efforts and is helping workers and companies to cushion the effects of job and income losses. Banks postpone loans and mortgage payments. And some landlords have postponed the rent. These positive steps will benefit many individuals and businesses, but the Canadians' initial financial position is fragile.
COVID-19 could bankrupt people
In January 2019, almost half of Canadians surveyed said they made $ 200 from bankruptcy. In addition, 45% of respondents said they needed to borrow more to cover their living and family costs. And in a recent poll, over a million Canadians said they were on the verge of bankruptcy.
Canadians are among the most indebted people in developed countries. The average annual growth rate (CAGR) of household debt to disposable income (after-tax income) prior to the Great Recession (2007) in the third quarter of 2019 was 2%, from $ 1.45 to $ 1. $ 77 debt to $ 1.00 income. For every dollar of after-tax income, the average household owed $ 1.45 and $ 1.77, respectively. Meanwhile, Americans reduced the average household debt over the same period from $ 1.38 to $ 1.02 for an income of $ 1.00.
The CAGR of average Canadian household spending between 2009 and 2017, the latest from Statistics Canada, was 2.1%. The CAGR for accommodation and transport was 3% each during this period. In both periods, accommodation, taxes, transportation, and meals accounted for 64% of total expenses. Health care spending stayed at 3%, increasing from $ 2,000 to $ 2,500 over the same period.
Household income per capita grew at an average annual rate of 2.5% between 2007 and 2016, which is roughly in line with inflation.
The debt service rate, debt as a percentage of disposable income, is more realistic in assessing the likelihood of debt settlement. The proportion of Americans decreased from 13% in 2007 to 10% in late 2019. The proportion of Canadians in 2019 remained at the 2007 record high of 14.9%.
Canadians are among the most indebted people in developed countries. The average annual growth rate (CAGR) of household debt to disposable income (after-tax income) prior to the Great Recession (2007) in the third quarter of 2019 was 2%, from $ 1.45 to $ 1. $ 77 debt to $ 1.00 income. For every dollar of after-tax income, the average household owed $ 1.45 and $ 1.77, respectively. Meanwhile, Americans reduced the average household debt over the same period from $ 1.38 to $ 1.02 for an income of $ 1.00.
The CAGR of average Canadian household spending between 2009 and 2017, the latest from Statistics Canada, was 2.1%. The CAGR for accommodation and transport was 3% each during this period. In both periods, accommodation, taxes, transportation, and meals accounted for 64% of total expenses. Health care spending stayed at 3%, increasing from $ 2,000 to $ 2,500 over the same period.
Household income per capita grew at an average annual rate of 2.5% between 2007 and 2016, which is roughly in line with inflation.
The debt service rate, debt as a percentage of disposable income, is more realistic in assessing the likelihood of debt settlement. The proportion of Americans decreased from 13% in 2007 to 10% in late 2019. The proportion of Canadians in 2019 remained at the 2007 record high of 14.9%.
Conclusion
These guides are helpful for navigating in today's unprecedented situation:
Prepare a budget for the next three to six months. Understand that a budget is not a limiting tool, but a liberating tool. This is your best estimate of the likely cost in a future time period to meet certain goals. You control it. It should never control you. When you're married, you and your spouse need to be on the same page to benefit.
Keep in mind that deferred loan repayments will be due in a few months. So plan for the repayments and try to put these funds aside.
If possible, pay off your expensive consumer debt.
If you have an emergency or stock fund, don't use it unless you're applying the affordability index.
Don't be afraid to seek help from your church or trusted counselors.
Listen to real experts, stay home if possible, and practice physical distance. Jesus' blood covers his disciples, but he has given us common sense to make wise decisions. In the meantime, let's continue to follow the golden rule and do what they should do to others.
I am grateful to those on the front lines for protecting us. Now that we know who is important in our society, I pray that we will respect and compensate them well, now and as we take this step.
Keep in mind that deferred loan repayments will be due in a few months. So plan for the repayments and try to put these funds aside.
If possible, pay off your expensive consumer debt.
If you have an emergency or stock fund, don't use it unless you're applying the affordability index.
Don't be afraid to seek help from your church or trusted counselors.
Listen to real experts, stay home if possible, and practice physical distance. Jesus' blood covers his disciples, but he has given us common sense to make wise decisions. In the meantime, let's continue to follow the golden rule and do what they should do to others.
I am grateful to those on the front lines for protecting us. Now that we know who is important in our society, I pray that we will respect and compensate them well, now and as we take this step.