How COVID-19 Has Affected Affordability in Canada
It’s no surprise that Canadians are struggling right now due to the COVID-19 pandemic. While many Canadians have been able to keep their jobs or adapt by working from home, we all know at least one person who wasn’t as lucky. A friend or a family member who has lost their job. A local business that has had to shut their doors permanently. Times are tough and as this pandemic continues to drag on, an affordability gap is becoming more and more apparent.
The 2020 BDO Canada Affordability Index results* reported that twice as many Canadians surveyed are financially worse off due to the pandemic compared to those whose finances have improved. The 39% of Canadians that are worse off financially are struggling in three main areas.
In This Article:
Canadians Are Struggling More Than Ever to Keep up With Debt
The first financial struggle that many Canadians are facing right now is debt. Of course, debt is nothing new to many Canadians, however, the current financial climate has increased those concerns. According to the BDO study, 46% of Canadians say that their current debt is overwhelming and 66% of Canadians currently dealing with debt said that they can’t keep up.
Granted, the Canadian government has pushed out benefits and incentives to help those struggling at this time including CERB and now CRB, but it appears that only 29% of Canadians with debt have actually applied for financial aid.
Why? There has been a lot of confusion as to who does and who doesn’t qualify for the benefits. Chances are many Canadians dealing with debt aren’t confident with soliciting help. Struggling with debt can be incredibly demoralizing, but there is help available.
Apply for Government Benefits
If you haven’t applied for government benefits yet, this should be your first step. As of September 27th, 2020, the Canada Recover Benefit (CRB) has replaced CERB. CRB pays out every two weeks and is available to both employed and self-employed Canadians who have been laid off or experienced a significant income reduction due to COVID-19. There are several eligibility requirements that will be verified by the CRA, however, it’s pretty straightforward and will pay you out $1,000 every two weeks (minus 10% held back for taxes, so $900). CRB lasts a maximum of 13 weeks and you will need to apply for each period. It’s worth the time to learn more about the CRB.
Consider a Balance Transfer Credit Card
A new credit card may be the last thing you want to deal with right now but bear with me because this could help you save a money if you struggle with credit card debt.
Balance transfer cards allow you to transfer/consolidate high interest credit card debt to a low-interest credit card. Typical credit cards have interest rates of 20%, but many balance transfer cards have promotional rates of up to 1% interest before they go up to their normal, yet lower than usual rates. That low promotional interest period can play a huge role in helping you catch up with your payments.
Consider a Personal Loan
Many Canadians consider personal loans as a last resort. If you are struggling to afford everyday essentials like rent, electricity, and food then taking out a loan might be necessary.
Interest rates for personal loans vary depending on the lender and your credit history. Keep in mind, since the prime rate has been significantly lowered due to COVID-19, most lenders are offering better deals and lower rates. If you’ve lost your job, it may be worth taking a look at taking out a personal loan.
Families are Struggling to Afford Essentials
Struggling with debt is bad enough, but it’s a huge problem when it gets to the point that people are having trouble affording necessities. 30% of Canadians have said that feeding their family has become a challenge and 23% say they are having to forgo other essentials in order to make payments.
In addition to the debt tips shared earlier in this article, here are a few steps you can take to stretch your money further.
Get Smart About Grocery Shopping
First, start with our guide on how to save money on groceries. Shopping in certain stores, on certain days and looking out for deals might take time but can help alleviate some of the added stress around providing for your family.
Secondly, consider a credit card that offers cash back on groceries. You may as well earn back some of what you spend. There are several options available to Canadians however we recommend the following three:
1. BMO CashBack® MasterCard®*
No annual fee, 5% on eligible groceries for the first 3 months (conditions apply). After this promotional period, you will earn a regular rate of 3% on eligible groceries (up to $500 per month spent).
2. Tangerine Money-Back Credit Card
Special 10% cash back rate on the first $1,000 spent with the card ($100 cash back) in the first two months. Offer expires August 16, 2021. No annual fee, plus 2% cash back on groceries (if you choose groceries as one of your main categories).
Create a Budget
Creating a budget can be incredibly helpful if you’re trying to save money. By figuring out where your money is actually going, you can better determine how to curb spending habits and find areas where you may be able to cut back.
Sure, the idea of tracking your spending may sound like a lot of work, but there are plenty of budgeting apps available to help Canadians with the task.
We suggest KOHO which has a free option and also works as a prepaid credit card or PocketSmith which will allow you to produce balance forecasts. Both help you track your spending in real-time and make better decisions about your budgeting.
Canadians Are Prioritizing Emergency Funds Over Long-Term Savings
Results from the BDO survey show that 51% of Canadians now consider an emergency fund a priority. In order to bulk up that emergency fund, 32% of those surveyed say they are resorting to decreasing long-term savings, while 24% will have to retire later than originally planned.
Having an emergency fund should be a priority, but you shouldn’t have to pass up on saving for the future either. Here are a few tips to help cover both situations.
Prioritize Your TFSA
Typically, Canadians tend to use their RRSP to save for retirement rather than their TFSA. In some cases, your TFSA can be the better option. Like an RRSP, you can invest the money in your TFSA, yes even now. Unlike an RRSP, your TFSA is much more liquid and you won’t be penalized for withdrawing from it.
Brush up on the differences between the RRSP and TFSA, and consider setting aside your savings into your TSFA for now. Ideally, you can keep it there where it can grow over time and be saved for your future. If things do take a turn for the worst and you need access to the money sooner, it’s there waiting for you.
Keep Your Dedicated Emergency Fund in a High Interest Savings Account
For those who do have an emergency savings account, I recommend keeping that money in a dedicated high interest savings account. This way you keep your money separate and earn interest while you aren’t using it. There are plenty of high interest saving account options available to Canadians, you just have to find the one that suits your needs best.
There is no doubt that times are tough. If you are struggling financially, please know that you are not alone. It is ok to ask for help if you need it. Financial stress can also play a huge role in your mental health and it’s important to maintain a healthy mind as well as a healthy wallet.
If you need someone to speak with, please know that there is support available in your community. Hang in there, we will get through this!
*Find the full report here.
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