Covid-19 is wreaking havoc on financial health of Canadians
Just a few weeks into the COVID-19 pandemic we have evidence that COVID-19 is wreaking havoc on the financial lives of Canadians. Income is being lost, savings balances depleted, and most acknowledge that this crisis is having an adverse impact on their financial well-being.
This agile, and rapid, needs assessment was deployed to answer one important question — how are Canadians coping financially during the COVID-19 pandemic? A similar diagnostic was deployed across 8 other countries by BFA Global (see here).
We use the insights from the survey to make pointed recommendations to policymakers and the private sector on how to support Canadians to weather the COVID-19 storm, and to build-up the financial resilience to push through any other future shocks.
The survey was launched during the week of April 6th of 2020. This was three weeks after the federal government issued a stark warning to Canadians — to stay home as much as possible, avoid crowds, and keep away from others or to face additional enforcement measures.
During this time, many provincial governments declared states of emergencies in an effort to contain the COVID-19 pandemic. This resulted in the closure of government services and all businesses that were considered non-essential.
The federal government also launched Canada’s COVD-19 Economic Response Plan to support individuals, businesses, and industries that were financially impacted by the pandemic. We provide early evidence of the uptake of these benefits and point to some gaps in Canada’s social safety net.
Close to 300 respondents across Canada participated in the survey. The majority of respondents was from Ontario (72%) followed by British Columbia (9%), Alberta (5%) and Quebec (5%). Most respondents resided in urban areas (70%), and a small portion lived in the suburbs (26%), and rural Canada (4%). There was variability amongst gross income levels with the largest portion earning between $50,000-$74,999 (26%) followed by $30,000-$49,000 (15%).
This survey was designed to be indicative and directional rather than nationally representative. Our aim was to mobilize data rapidly and provide a snapshot of how a critical mass of Canadians are coping financially in the midst of COVID-19. Our findings will surface focus areas for deeper exploration and more rigorous analysis.
1. We are already seeing a degradation of financial health due to COVID-19
A fifth of respondents have experienced changes in their employment situation
Approximately 21% of respondents have experienced a change in their employment situation during the period of COVID-19. Of the respondents that have experienced changes, 75% have moved into unemployment while approximately 10% moved into part-time roles. Overall, rates of full-time employment dropped by ten percentage points (61.8% to 51.9%) during the period of COVID-19. Rates of unemployment rose by over 13 percentage points (7.5% to 21.1%).
Almost half of respondents have taken on additional care responsibilities
Over 45% of respondents are caring for others more than usual as a result of the pandemic. 29% indicated that they were caring more for children due to schools closing while 23% have additional responsibilities for parents or other elders. Many also undertook care taking activities within their own community, sending groceries to friends or running errands for neighbors, who were at high risk of infection, or already infected with COVID-19.
Due to job loss and additional care taking responsibilities, many respondents reported a decrease in their income
39% of respondents reported a decrease in their income. This is in line with results in Great Britain and the US from Bankable Frontier Associates’ (BFA) similar study of COVID-19 and its impact on finances (link). Amongst various types of employment, self-employed workers were hit the hardest with almost 83% of respondents seeing a drop in their income.
There were a number of different reasons for the decrease. In addition to job losses, respondents noted that employers lowered their salaries or wages, held back bonuses, and reduced their working hours. A portion of respondents who relied on income from investments, saw their portfolios, and thus their investment income, drop significantly. Some older respondents noted that they would need to defer their retirement as a result of financial loss incurred during the COVID-19 pandemic.
The need to care for others, both children and parents or elders, also negatively contributed to respondents ability to earn income. 41% of respondents experienced a reduction in what they earn due to additional care taking responsibilities taken on during COVID-19 when schools and care taking facilities closed.
2. Many Canadians saw a decrease in their expenses, but not rent
Expenses, like income, also decreased
56% of respondents noted that their expenses decreased, either somewhat or significantly since COVID-19. This is in line with the US where 68% of respondents noted a decrease but higher than the UK where only 37% noted a decrease (link).
In some cases, the cost-savings emerged from being confined to home, and no longer needing to commute or being able to eat out, or hit the local bar or coffee shop. Some respondents also noted that they were being increasingly more careful with their spending, because they were unsure how long the crises would last and whether they would have the financial means to push through a long period of economic downturn.
In most cases, rent did not decrease
86% of respondents who rented noted that no action had been taken by their landlord to alleviate or defer their rent payments. This expense was a source of great stress for many of the respondents.
3. Many Canadians did not have the adequate savings to help them navigate the crises, and looked to the government for support
A large number of Canadians do not have a sufficient enough emergency fund
Over half (51%) of respondents had either no emergency fund or an emergency fund that would last for two months or less. By income bracket, 65% of those with an annual income less than $50,000 and 54% of those with an annual income between $50,000 and $100,000 have less than two months of savings in their emergency funds. This is particularly concerning considering the fact that median 2018 income in Canada is $36,400 according to Statistics Canada (link).
*Note some respondents preferred not to disclose their income
Already, 20% of respondents with emergency funds have tapped into their emergency funds. Again, lower income individuals are more impacted with 37% of those making <$50K annually having already tapped into their emergency funds.
Canadians are increasingly looking to government for support during the crises
22% of respondents were already receiving some support from the government including: Emergency Care Benefit (9%), Employment Insurance (7%), Canada Emergency Response Benefit (6%), amongst others. But in the future, 38% expected to use government support to fund their daily expenses. This signals that workers are increasingly feeling insecure about the stability of their jobs, and their ability to generate the same level of income in the future.
4. Two groups were hardest hit by the pandemic — self employed workers and lower income Canadians
Self-employed workers lost jobs and saw sharp decreases in income
83% of self-employed workers saw a decrease in their income. This is significantly higher than self-employed respondents in the US (62% saw a decrease) or the UK (42% saw a decrease). It is also significantly higher than full-time respondents where only a portion (21%) noted a decrease.
For self-employed workers, more than half (58%) reported that the decrease was significant, and over 40% claimed they moved to being unemployed as a result of the crises. Nearly all (94%) self-employed respondents noted that the COVID-19 pandemic would have an adverse impact on the financial well-being of themselves and their households, although most expected that they would bounce back financially from the pandemic.
Even though this segment saw a sharp decrease in income, they were less likely to apply for government benefits compared to the overall sample. Over half of self-employed workers that had income declines responded that they did not think that government benefits applied to them. This was likely because at the time that the survey was deployed, the Canada Emergency Response Benefit (CERB) applied only to workers who lost all of their income for a period of 14 consecutive days, not to those who saw a decrease, even if that decrease was significant. But on April 15th, (2020) the Canadian government expanded the CERB to include workers whose monthly income had reduced to $1,000 or less. With this change, it is likely that there will be a higher uptake of this critically important benefit amongst self-employed workers.
Lower income Canadians were also severely impacted
More than half (52%) of respondents making $50,000 or less experienced a decrease in their income compared to one third (33%) of respondents making more than $50,000 annually. This is partially due to the fact that lower income Canadians were more likely to experience a change in employment with over 41% having experienced a change already as compared to 14% of those making over $50,000.
What is particularly interesting is that those making between $30,000 to $50,000 had experienced the biggest disruption to their employment status with over 56% switching their employment status primarily moving from full-time positions to part-time positions or unemployment or from self-employment to unemployment.
The issue with lower income Canadians experiencing more significant disruption is compounded with their lower savings. 65% of Canadians earning less than $50,000 have no emergency fund or an emergency fund of less than 2 months. For those earning $50,000 or more, 48% have no emergency fund or an emergency fund of less than 2 months, still a significant number but also notably less.
Already, 37% of respondents making less than $50,000 with emergency funds have tapped into these funds as compared to 22% of those making between $50,000 and $100,000 and only 6% of those earning over $100,000 (6%).
5. Despite the financial hardship, Canadians are optimistic about their future
Most were optimistic about their ability to bounce back financially from the adverse effects of the crises.
75% of Canadians noted that the crises would result in adverse effects on their well-being. This is much higher than in the US (39%) or the UK (29%), indicating that on a global scale, Canadians are more worried about the impact of the pandemic on their financial health.
But over 85% noted that they were somewhat or extremely confident that they would bounce back from it’s adverse financial effects. This optimism was consistent across all forms of employment, including self-employed and full-time workers. It was also apparent across income groups where 9% of those making less than $50,000 were either somewhat or extremely confident that they would financially recover.
1. Our emergency response measures need to be more inclusive
The experience of self-employed workers during COVID-19 highlights the need for a revamp in our emergency response measures, to ensure inclusivity and fairness. Self-employed workers must be covered by government benefits from the onset, and these benefits have to be adjusted to better suit the realities of these workers. Income replacement programs like CERB should not exclude those who have seen significant decreases in their income, but are still earning something. Self-employed workers have been at the front line of this COVID-19 battle. They must not be overlooked in any future emergency response measures.
2. Our social safety net needs to be revamped
COVID-19 appears to have peaked in Ontario, and it is likely that Canada has gone through the worst of the pandemic. It might soon be time to shift our focus to planning for equitable economic recovery, where the needs of self-employed workers should be given equal consideration and where our benefits system goes through a radical reform.
The private sector has a vital role to play in this process. Any companies that make good use of self-employed worker talent should be on the hook for contributing something to their financial security. This could mean paying into a portable benefits scheme where workers access a range of non-statutory employment protections, from sick leave to extended health insurance. These benefits could be retained by workers even if they move jobs or become unemployed. Such a benefits scheme would provide self-employed workers with the financial buffer to financially navigate their next big crisis, whether it’s COVID-19 induced or not, and build financial resilience in the future.
3. Individuals and Small businesses need rent relief
For both individuals and small businesses, rent serves as a major expense. As incomes of individuals and small businesses continue to be disrupted, many risk further financial precarity because of their need to pay this important expense. However, less than 15% of respondents indicated receiving any type of rent relief from their landlords. These efforts have been directed by the initiative of individual landlords rather than any government-wide initiative. In places like the UK and Australia, efforts such as a national moratorium on commercial rent evictions have been implemented. Canada needs similar action to provide rent support for Canadians both at an individual and small business level.
4. We must find better ways to help Canadians build emergency funds
COVID-19 has highlighted how few Canadians actually have emergency funds in the case of a disruption of their income. In this day and age, it is difficult to build an emergency fund with cost of living skyrocketing and wealth inequality widening. We need to find different ways to encourage Canadians to build emergency funds. These solutions could include scaling matched-based savings programs to help low-income Canadians build emergency funds as has been done by fintech Quber and Calgary-based non-profit Momentum for low-income Calgarians (link). It can also include enabling employers to implement solutions that help their employees build emergency savings funds as has been done by Nest Insights in the UK (link)
We would like to thank Roger Morier for his support on communications and Bankable Frontiers Associates for the use of their survey tool.