BDO Financial Wellness Podcast: Moving on after CERB
There’s no denying that the coronavirus pandemic has affected Canadians’ financial lives over the last few months in ways they could not have anticipated. The Canadian Emergency Response Benefit (CERB), along with other government and lender assistance — including mortgage payment deferrals, student loan debt and credit card relief, extra GST and Canada Child Benefit payments and more — have been helping to keep Canadian households financially afloat over these past few months.
If you’re worried about what will happen to you when CERB and other financial assistance is no longer an option, you’re not alone. We recently spoke to Nancy Snedden, a BDO Licensed Insolvency Trustee, about what moving on after CERB will look like for Canadian households, and what strategies can help you resolve your debt, deal with affordability challenges and move forward during unprecedented times like these.
Hello, thanks for joining us.
This is the BDO Financial Wellness Podcast, and I’m your host, Tera Beljo. Today, we’re talking about the subject that’s on the minds of a lot of Canadians, what is going to happen when their CERB payments end?
Since it was introduced by the Federal Government in March 2020, CERB, also known as the Canadian Emergency Response Benefit, has been a lifeline to millions of Canadians who have been affected by the coronavirus pandemic. But on October 3rd, CERB will come to an end.
I had the pleasure of sitting down with BDO Licensed Insolvency Trustee Nancy Snedden to get her thoughts on the end of CERB last week. Is there a path forward for Canadians who have been relying on $500 a week payments to make ends meet?
Nancy is a Licensed Insolvency Trustee with BDO Debt Solutions and leads the BDO team in Atlantic Canada. Nancy’s team of debt professionals, along with BDO teams in communities across Canada, help Canadians find the best solution to their debt problems.
Thank you so much for joining us today. I’d like to start off by asking you to share your thoughts on what’s happening in the economy today.
Tera, it’s a really strange economy these days, because some people are really anxious to get it reopened. Some people are really anxious to start going out to restaurants and different social aspects of life. And others are more inclined to let’s do this slowly or let’s scale back what we’re doing to reopen the economy because they’re still really concerned about their health. So that’s causing the economic rebound to be slower than some people may want to see it.
I know small businesses are really anxious to get the economy back open, obviously because that’s their livelihood. But in order for them to thrive, they need consumers to be able to get out and start spending.
Now, some will be able to do that because they haven’t been impacted financially with regards to COVID. Others are going to be more cautious on whether or not they’re actually going to get out and start spending even when the economy does reopen. So we’re in a really different time now. I mean, the word unprecedented is used all the time to describe the world that we’re in, but everyone needs to start getting used to what their new normal is. And that’s both from a health perspective, from a social perspective and from a financial perspective, really.
What are teams across Canada BDO, including Licensed Insolvency Trustees, Counsellors, Administrators, hearing from Canadians, as they advise and assist them with their debt challenges?
I think people really today are unsure with what is the best option for them to do. As we know, when this all started back in March, a lot of the banks came out with deferral programs. So people are wondering, should they be deferring? Should they not be deferring, even now? And if they did, what are the consequences of that? People are wondering, should they be looking at options like a consumer proposal or a bankruptcy now? Should they be waiting until they get back to work, get back on their feet?
There’s lots of uncertainty, I think with people now and, and not being sure what the right answer is to them because they’re unsure if their income’s being reduced, how long it will be reduced, and so on.
What kind of frame of mind do you think they’re in right now? Are they stressed? Are they scared?
Absolutely, I mean, in the best of times, like before COVID even started, there was a lot of stress on individuals all across Canada.
I mean, there’s been surveys done that show that you know, 50 per cent of Canadians are $200 away from being unable to pay their bills. We’re at the highest level of debt we’ve ever seen in Canada. We’re at $1.77 owed on average for every dollar that people are earning. Now that’s the average, Tera, so that means there are people who are below that, and there’s people that are much above that. And I read an article that said you know it’s about 8 per cent of Canadians that are $3.50 owing to every dollar that they earn.
So you can imagine the amount of stress that that’s going to create for people if they’re carrying that level of debt. And COVID just adds to that because you’ve now got health concerns on top of your financial concerns, you likely have reduced hours or reduced income so it’s definitely a stressful time.
I can see that. How have you seen the personal financial challenges changing or evolving for Canadians since the crisis began in early March?
I think the financial challenges are still there for Canadians. You’re seeing media reports that show insolvency rates are down significantly. And I think that can be misleading for people because I certainly don’t believe that it’s because the financial situation for Canadians has improved dramatically and there’s no longer need for them to look at consumer proposals and bankruptcies and the things that those stats are predicting.
I think it’s more the case that people are so uncertain as to what the right thing for them to do right now is. People are holding onto their credit, so they’re not sure that a proposal or bankruptcy is the right thing for them right now because they’ll lose their access to their current credit and they need that to supplement their current income.
Also, as I mentioned, because of all the deferrals that are available for mortgages, car loans and in some cases, credit card payments and stuff like that, people are taking advantage of those. They’re not having to make their payments, so the urgency to make a filing has left them right now.
Okay. Millions of Canadians have applied for CERB since it was introduced in March. How should these Canadians plan for the end of CERB payments and the end of payment deferrals when many actually have little or no immediate prospect for returning to work?
It’s really important that people look at what all their available options are as CERB comes to an end. Will they qualify for regular EI benefits or sick benefits depending on if they have health issues as a result of, or prior to COVID-19? They need to look at what training may be available to them. What government supports may be available for them to re-train, re-tool so that they improve their job prospects if they’re in an industry that’s going to be slower to come back. They need to look at what other supports might be available as well.
Are they able to get some support from family or friends? Can they take advantage of a line of credit from a lender? I would caution that you need to be careful with that and knowing that you’re going to be able to make the payments and repay it in a short period of time. You also need to look at your emergency fund. Has that been depleted? I would also say if you have RRSPs and you’re considering tapping into those to make debt repayments or to get you by, make sure you’re considering the tax consequences of that. And if it’s to make debt repayments solely that you’re going to look at cashing your RRSPs, then speak to a Licensed Insolvency Trustee ahead of time, because your RRSPs can be protected in any filling that you’re making.
Wow. That’s some good information for people. Are there community resources people should be aware of that can offer emotional support during this time?
Yeah, I think you always want to reach out to those in your community. Whether that’s a trusted family member or friend that you can just share your struggles or try to get some advice from. If it’s a financial advisor that you have a good relationship with. If it’s an EAP provider from your employer, that you can have a discussion with to get some advice. In some cases, your family doctor can provide you with some support mechanisms, some people that you can reach out to, or even if you have a spiritual advisor or you’re involved in a church, things like that, anywhere that you feel that you can get the support that you need, or get the advice that you’re looking for.
What communication strategies can families or couples put in place to weather this next phase or this new normal?
I think for families it’s really important, first of all, for spouses to have those discussions about their finances, and many don’t. In many families, even prior to COVID, there was maybe one person who took care of the finances, and maybe spouses didn’t even talk to each other about what their budget looked like or what their monthly bills look like. It’s super important that everyone’s on the same page when it comes to that. You need to have those open communication so that everyone knows what your monthly income is, what your monthly expenses are. And if that means sitting down once a week or once a month and having an open discussion, then that’s what families should be doing.
If you’re uncomfortable starting that discussion, because maybe you’re not on the same page with spending strategies, or you’re not on the same page with what your financial goals should be, then maybe you’d want to sit down with a financial advisor first to kind of layout the groundwork of how those discussions should be going. And get it out on the table on what your differences might be so that you can come to a plan to overcome them. But the first step is definitely making a plan to have that conversation.
And how should we discuss financial challenges with our children?
When it comes to kids, I think it’s super important that we do have those discussions because there’s not a lot of financial education that goes on in the school system. But it’s really going to depend on your comfort level in having the conversation, and your knowledge base. And do you want to get some more information yourself first to give you that comfort in having the conversation? And it’s also going to depend on the age of your kids. You could have… The Financial Consumer Agency of Canada says you should start having conversations with the child as early as three years old. But the conversation you’re going to have with a three-year-old is going to be very different than that of a 12 or 13-year-old.
Base it on their allowance if they have an allowance and I’ve heard some strategies in the past of having three jars. One is savings, one is maybe something that they’re going to put away for charity or something that could come up at school that they want to commit to, and the other one is their spending money. So that they get a feel for when you have money, you need to think of how you’re going to plan for that money. And it’s not just all available to spend on a regular basis, things like that.
You could get them involved in the meal planning. Taking out the flyers and planning the meals for the week and explain to them the importance of budgeting and making sure that you’re spending within your means when it comes to groceries, that kind of thing. There’s many ways that you can get them involved, you just need to make sure that it’s age-appropriate. And the Financial Consumer Agency of Canada has a ton of information on their website that can help parents navigate those conversations
As a parent, that is some great tips that I’m going to actually start using myself.
For those people who need to rely on credit to make ends meet, even after CERB payments end, what’s your advice?
I guess my advice when it comes to relying on credit is, the best option is that you don’t have to strictly rely on credit to supplement your income. I would say your first step should be to sit down, whether it’s as a couple or with the help of a financial advisor or credit counsellor or Licensed Insolvency Trustee, and go through your budget to make sure that you’re really budgeting to the best you can before you look at credit as an option. If you think it’s going to be short term and you have a plan to be able to repay the credit that you’re going to be using during this time, then I would look for low-interest rate credits.
Look at maybe a home equity line of credit if you have some equity in your home, that has a low-interest rate. But be aware that that is attached to your home. So if you get to the point where you can’t make a payment on that, you do risk foreclosure on your property. So you need to make sure that you’re planning well when it comes to that. Other low interest could be a consolidation loan so that you’re getting one payment that you can then free up some of the other credit, but you’re paying back at a low interest. You may want to look at line of credit that’s unsecured. It will still be a lower interest rate than a credit card, but my best advice will be stay away from high-interest lenders.
There’s finance companies out there that are charging 30, 40, 50 per cent interest on loans. And they advertise, you can pre-qualify for large amounts or amounts that you might think can get you by, but you’re going to end up repaying that at a much higher rate. And for sure, stay away from payday lenders, because that becomes a cycle that it’s really hard to get out of once you get into it. And again, those can be rates of interest up to 60 per cent.
What would you say to someone who is afraid to seek help from a debt professional or who is comfortable with the notion of relying on credit in the short term to get by?
I would say there’s nothing to fear from seeking advice. Licensed Insolvency Trustees for the most part are going to offer free initial consultations. There’s no obligation to move forward, but at least you’re sitting down and understanding what your options are. The internet has a lot of great information, but you can never rely on it to be consistent with what you need for your situation. It’s really general in most cases. And I can tell you that I see thousands of people every year and no two situations are the same.
I’m not giving the same advice to one person that I would give to another because it’s really tailored to what’s going to work best for them. And like I said, there’s no obligation. So there’s nothing to fear from sitting down and getting the right advice. It lets you make a decision that’s based on what the best option is for you and a well-educated decision.
It seems like almost weekly we are hearing statistics about how Canadians are feeling about the financial effects of this pandemic. We know that many are anxious about their future and at the time of this recording today, we don’t know if the end of CERB payments will be followed by additional government assistance.
So considering the uncertainties, what is your advice for people who want to know how they should plan for the future?
I think the best advice I can give Tera is to get the advice of a professional. Whether that’s a trusted financial advisor or credit counsellor or Licensed Insolvency Trustee, get some advice on what the best thing for your future is going to be. Again, if you have investments, you’re going to want to get some advice on should you be touching those investments to get you by in the short term if you’re on CERB and that runs out. Again, to your point, we don’t know what’s going to happen. If the government is going to extend again, if there’s going to be some other program, there’s a lot of discussion too, around the gig economy and how people are looking for other ways to supplement their income.
Whether it’s doing handyman jobs around the community, as the economy starts to open back up and you’re practicing social distancing, there’s still ways to do that. Whether it’s doing some sort of online work that you can do from home, there’s many call centers, for example, that may allow you to work from home to increase your income. But I think it’s just doing what’s right for you and getting the advice on what will be right for you and not making assumptions necessarily.
If you’re having a lot of financial stress, if you’re having anxiety about what the future holds, then you are again, going to want to reach out to maybe an EAP provider on how to maybe manage that stress or financial advisor on how to manage those finances better to reduce the stress that you’re feeling.
Thanks so much to Nancy Snedden, BDO Licensed Insolvency Trustee for taking the time to share her insight and expert advice.
And thanks to you, for listening to this episode of the BDO Financial Wellness Podcast.
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