COVID-19 – Personal finances: the calm before the storm?
Life hasn’t been easy for people on low incomes since the pandemic began. We look at how they’ve been doing, and what may lie ahead for them.
To start with, some good news. You might think that Canadians have been facing unsurmountable problems since COVID-19 came on the scene, but according to François Décary, director general of the community organization ACEF-ABE and president of the Union des consommateurs, things have actually been going quite well overall.
It’s the same story at the EBO Financial Education Centre, an Ontario non-profit with a mission to fight exploitation and indebtedness through financial education. Budget coach François Leblanc heads a program for people living on modest but stable incomes. “For the most part, they’ve come through the COVID-19 crisis without incurring excessive debt,” says Leblanc. “Since they’ve been spending less, they’ve made it to the end of the month quite easily. Some have even been able to pay down their debt.”
How to explain this phenomenon? “By initiating measures to help people continue to meet their obligations, the federal government has acted wisely,” says Décary, who believes the Canada Emergency Response Benefit (CERB) has “helped a lot of people.” Financial institutions and service providers have also been helping, notably by making it easier to postpone payments. “We’re glad they’ve taken into account that some consumers are unable to pay [right now].”
It may seem surprising to hear this kind of talk from an ardent defender of consumer rights like François Décary, but the expert believes in giving credit where it’s due. “Things haven’t been perfect,” he says. “We would have preferred the measures to be more uniform, that governments give firmer direction to the financial institutions so people don’t pay too much interest, especially on credit cards with high rates. But honestly, I don’t have a lot to criticize. The government has done more than I expected.”
Décary is concerned, however, about people whose financial situation was causing problems before the pandemic, and those who have no financial cushion – and many people fall into that category. In 2019, 43% of Canadians were living from paycheck to paycheck, according to statistics from the Canadian Payroll Association. “Postponing mortgage payments may help,” he says, “because the unpaid amounts are postponed to the next term and paid back over a longer period. But postponing payment for other consumer goods is more risky. For example, a car bought at a second-chance dealership, with payments spread over three years. The payments may be postponed for six months, but you still go on using the vehicle, having it repaired…. There comes a time when it’s not worth it…”
The forgotten ones
While government programs have been generous, certain categories of citizens have slipped through the cracks, including people on social assistance who are considered “able to work.” In Quebec, recipients get $690 a month and have the right to earn $200 more without being penalized. “They often manage to make that much by doing odd jobs, so they can make ends meet at the end of the month,” says Harry Penso, a community development advisor at Option consommateurs. “But with COVID, nearly all of them have lost that extra income.
People on social assistance have really been having a hard time…”
Harry Penso, community development advisor at Option consommateurs
Décary agrees. “The government has not been sensitive to people on extremely modest incomes. They really should have got a bit more,” he says, adding that actually, what they really need is a substantial top-up.
People on low incomes have encountered other problems, too. “When the pandemic began, they didn’t have the means to stock up,” says Penso. “Then the shelves were empty and the specials disappeared. So a lot of people had no choice but to go to food banks.” Luckily that service, though it can still be quite uneven, has to some extent reinvented itself
“The high number of requests has led the community milieu to reorganize. There’s been a small boom in social innovation.”
François Décary, director general of the community organization ACEF-ABE and president of the Union des consommateurs
Low-income earners have also had trouble paying for their purchases. “They usually pay with cash,” says Penso, “because they don’t have credit cards.” When merchants began refusing to handle cash, they were obliged to use their debit cards to pay. “Their monthly fee usually only includes a few transactions, so their bank fees have gone up.” He adds that luckily, some financial institutions have been somewhat flexible.
Some people living on low incomes have managed to get prepaid credit cards. “This is not a product that we recommend,” says Décary. “The consumer has to pay in advance to hold that type of card, and missing a payment means they have to pay interest on the full amount due.” Other people may have turned to online lenders. We don’t know yet whether there’s been a resurgence of this type of loan, but we do know that it’s very popular with people living on low incomes.
No one really knows what consequences COVID-19 will have on consumers’ personal finances in the months or even years to come, but many are deeply concerned. We have all sorts of assistance measures now, but what will happen when they come to an end?
Some also wonder whether the crisis will affect the credit ratings of those who’ve had payments postponed. Décary says that depends on how the credit bureaux handle the information they receive, and also how the financial institutions analyze the data.
In a few years, will a lender make the connection between the information in a consumer’s credit file and the COVID-19 crisis? If so, what conclusion will they reach?”
Another point: what effect will the pandemic have on low-income workers’ level of stress? Statistics Canada reports that 27% of Canadian workers say they experience high to extreme stress levels on a daily basis. Leblanc fears that that proportion will go up. “This fall, 40% to 45% of workers may say they’re feeling financially stressed.”
Despite everything, Décary remains optimistic. “We learned a lot from the crisis of 2008,” he says. “We remember what happened in Florida. It happened because the financial institutions were rigid and hadn’t put in place flexible measures for postponing payments. Currently, we’re not heading towards that scenario.”
Leblanc feels that this is the “calm before the storm.” He believes we’ll have a fairer picture of the situation once the CERB stops – and once we know how many jobs have been lost due to the pandemic. “What will people do when they find themselves unemployed? Will they dip into their savings? Will they liquidate their assets? Will they turn to credit to stretch their budgets? It’s hard to say right now. But we do know that people living on modest incomes are most at risk of losing their jobs… In any case, we’re getting ready to work hard this fall to help those clients…”