Beyond health: COVID-19’s impact on Canadians’ finances

WEST CARLETON – Canadians are facing a lot of uncertainty, even a year into the pandemic. Here in Ottawa, COVID-19 ended 2020 with another surge, bringing the total count of positive cases to more than 10,000. The vaccine rollouts are addressing people’s health concerns, but Canadians understandably remain worried about the economy and its impact on their financial security.

The lockdown as well as the other restrictions implemented due to the pandemic have caused problems to businesses and employees. Money has become even more precious to people who still have to account for their everyday needs while struggling with the challenges of a global crisis. In just a span of a year, here’s how the economic and financial state of both the country and its citizens have changed.

COVID-19’s impact on the economy

The economy crashed in ways people would have never expected at the beginning of 2020. According to a Reuters article, 16 out of 23 economists believe the economy will only be able to bounce back to pre-COVID levels within a year, while some believe that it would take two or more years. This long wait is especially worrisome for individuals whose source of income has been affected by the pandemic.

Today, Canadians have to think about job security, on top of their safety and health, after businesses closed or resorted to lay-offs. Unemployment rose to 8.6 per cent last December and is projected to decrease to 6.2 per cent by the end of next year.

Financial instability

COVID-19’s effect on the economy has caused a lot of stress and pressure on individuals who are now experiencing financial instability. As many as 42 per cent of Canadians have expressed their finances were not sufficient to help them survive the second wave of COVID-19. The pandemic has been really costly for a lot of Canadians who suddenly had to pay for additional expenses to protect or to recover from the virus. As a result, more than a third of the people surveyed said that they had to withdraw from their savings or apply for new loans to cover their expenses.

In response to this ongoing economic and health crisis, people have been making impactful changes to their savings, investments, and retirement plans. Many have even taken a big risk by dipping into their retirement savings to pay for everyday expenses — a worrying trend given RRSP withdrawals come with some major drawbacks. Early withdrawals can create a huge dent in the long-term value of your savings because the amount withdrawn is immediately subjected to withholding tax and is included in your taxable income for the year. Plus, it will cause a huge loss of tax-sheltered compounding, which can be especially useful for younger savers over time. Even if these risks can address today’s concerns, it might cause greater stress and bigger losses in the long run.

Road to recovery

The COVID-19 pandemic has taught a lot of Canadians about the value of money. Many understand the importance of budgeting their money and setting aside savings. It might take years before the economy recovers, but individuals can take important steps towards financial stability. The Canadian government emphasises the importance of setting financial goals. Consider your priorities and take into account how and when you can achieve these goals. Most importantly, try setting up a tax-free savings account or a savings bond, so you won’t have to take loans or withdraw from your RRSP in emergencies.