“Those who do not remember the past, are condemned to repeat it”
George Santayana
The first major, financial catastrophe that I truly remember the Global Financial Crisis of 2007-2009. Anything before that I wasn’t really aware of. This was in part due to my age, living a relatively sheltered and privileged life, and not having any interest in news or politics growing up. In 2008, I had just graduated from university and had started a new job when that crisis had coincidentally peaked around the same time.
I recall turning on the news one day and there were people being interviewed of whom had lost their jobs and homes as a result. At the time I didn’t really understand or appreciate the full nature of the situation, something to do with too many “sub-prime” mortgage loans and “market collapses”, etc.
What I did know at the time is that it affected a lot of people in major ways. It effectively sent the entire world into what is now called “The Great Recession”, the likes of which haven’t been seen since the Great Depression in 1929.
The recession was caused by multiple factors such as excessive risk-taking by banks, combined with the US housing bubble collapse, causing the value of market securities and real estate to plummet severely. It ended up culminating in an international banking crisis and further global economic collapse. Unemployment soared. Evictions, foreclosures, and failing businesses became common place. Enormous sums of money were being used by governments to bail out essential industries (ie: major banks and car manufactures) in an effort to prevent even worse outcomes. In 2009, the stock market hit its bottom. It took several years to fully recover.
How did you react?
Afterwards, there were numerous national and global financial policies created and implemented to help prevent something like that from ever happening again. But what about on an individual level? Were you affected by the Great Recession and if so, what did you personally do about it to protect yourself from potential future occurrences? Or did you do anything at all?
Reflecting back, I didn’t appreciate that major event as much as I should have. Even if you have never been directly affected by a major financial event like the Great Recession, there’s a good chance you might have had more personalized events that have affected you. Anything from job losses and layoffs, to unforeseen health expenses, family emergencies, car breakdowns, leaky roofs, flooded basements, etc. And even if none of those apply, you probably know someone who has been in one of those situations.
For myself, being through a layoff at the beginning of my working career at the same time as when we had just purchased our first house, was a pretty anxiety provoking event. I was fortunate to be able to transition fairly easily to another job without too much hassle. But before that happened, there was a big question mark of lingering uncertainty.
Having gone through that experience, coupled with some other motivators like not wanting to have to be financially dependent on anyone (individuals, employers, government, etc.), helped cement the idea of protecting myself and family as much as possible to be more self-reliant in case the proverbial sh*t hit the fan. As time has gone by, I’ve also come to appreciate and respect past financial crises and the enormous power and stress that they can wield on people.
Disheartening Trends
Over a decade has come and gone between the worst of the Great Recession and what is now known as the COVID-19 crisis. Sadly, I’m not sure as a society that we’ve learned much at all from the past, yet we’ve had so much time to prepare from the last crisis to the current one.
There’s been a disturbing trend that I’ve noticed which has been happening for quite a few years now. Financial polls have been showing up in the news fairly often describing what a terrible personal financial state that most people are in. The results are consistently abhorrent.
Check out the names of some of these news articles that have been published over the past five years:
- January 2016: Half (48%) of Canadians are Less than $200 Away Monthly From Being Financially Insolvent
- May 2017: Over half of Canadians are $200 or less away from not being able to pay bills
- Sept 2017: Almost half of Canadian employees living pay cheque to pay cheque, survey indicates
- Sept 2018: Why the rich, too, are living pay cheque to pay cheque
- Jan 2019: 53% of Canadians live pay cheque to pay cheque
- Jan 2019: 46% of Canadians $200 or less away from financial insolvency: poll
Wow! Just Wow! The hardest thing that I have trouble believing is not so much the numbers themselves, but the jarring fact that they’ve remained seemingly unchanged over those years. So was it really a surprise when the Coronavirus first hit and we had barely made it through the first month of lock down when articles like the following began popping up?
- March 2020: Half of Canadians say they are on brink of insolvency as coronavirus threatens to burst country’s consumer debt bubble
- April 2020: Thousands of Canadians can’t pay their rent today (mentions 23% or more can’t pay their rent or mortgage)
- April 2020: 3 in 10 Canadians couldn’t pay bills if they lost job due to coronavirus, per Ipsos survey (Citing 40% under age 55 only have one week or less of savings to cover food/rent).
How can a country as wealthy and economically productive as Canada also be in such an apparent poverty stricken state? And for so many years? It doesn’t really make sense.
Predictability
The COVID-19 pandemic wasn’t really predictable, but what is predictable is that there will be future crises. There always have been and there always will be. The question is not if, but when. History has provided us so many past lessons to learn from. We could have and should have been much better prepared for this pandemic. There was the learning period of the Great Recession. Before that there was the Dot-com bubble crash (2000-2002), and still more before that.
And it’s not just all the health and financial crises that we should have learned from. For years we’ve also been hearing about the continued rise of debt-to-income ratio, often setting record levels. Yet many haven’t changed or adapted their ways to self-correct this issue. There are always various reasons attributed to why Canadians have such a difficult time improving their financial affairs, to the point of impossibility.
Lack of Self Accountability
These reasons (aka: excuses) often talk about all the “struggles” that Canadians face with saving income. Things like wages not keeping up with inflation, too many low paying jobs, not enough jobs, life costing too much, things costing too much, gas is too expensive, cars are too expensive, kids costing too much. The list goes on and on. I’m calling a load of bananas on all of that!
This article from 2015, references a poll where:
- 65% of Canadians “believe they have financial habits to improve”
- 43% said “not saving money is their most stressful financial habit”
- 25% said “overspending or living beyond their means tops their worries”
These stats were from FIVE YEARS AGO!!! That means for half a decade, the majority of Canadians NEW they could and should have been doing better.
As such, the “struggle” for most* people is not that they don’t have enough money for their debts and expenses, but that they are lacking the knowledge and guidance of how to appropriately use their money for said expenses and what those expenses should actually be. They are financially illiterate.
One of the articles listed above states, “Higher interest rates combined with household expenses that outweigh income mean that some are unable to make any kind of meaningful reduction in their debt and, in fact, continue to take on more especially if they encounter unexpected expenses”.
This unfortunately gives the impression that someone’s general living expenses are not only appropriate, expected, and always increasing beyond their income, but that it’s considered a normal and accepted part of society to be in a position of financial drowning. That statement also absolves accountability on the individual and places it on “the system”, essentially saying that your financial problems are not within your control, and thus not your fault. This is society’s expectation of what is normal. Well, it’s not, and the minimum standard should never be considered as such.
I’m not saying that everyone needs to have a year or more of savings in the bank, but for God’s sake being able to survive more than two weeks without an income is something that we should be aspiring to far beyond. We can’t have everyone constantly living on the brink of bankruptcy all the time!
The Definition of Insanity
There can be plenty of reasons why so many are unprepared such as expensive purchases on “wants” versus needs, chronic instant gratification, using credit inappropriately, by new cars and fancy houses when you probably shouldn’t be. Ignorance in financial skills also plays a large role, yet it is not entirely of a person’s own fault.
Exceptions however do exist, as we all know at least one person who’s purchased a brand new $30,000+ car during the pandemic when we’re all thinking to ourselves, “Are you nuts?”. The government is also partially to blame for the lack of mandatory financial literacy education in the school system. By not making this a requirement or a priority of recent years, we’ve been setting up future adults to fail in the real world.
Since Canadians seem to be on a continually increasing path of debt, there’s obviously a problem happening here. We’ve been doing things wrong for a long time. If we continue what we are doing, nothing will change except for the worse.
As a well known quote states:
“If you always do what you’ve always done, you always get what you’ve always gotten.”
As in many areas of life, it’s true enough in this one too, and it’s well past time that we started changing our way of thinking and acting. Even if you’re not sure about how to begin, just starting with the notion of being aware that you’re not in an optimal position and that there just might be a better way of doing things is a great first step.
Surviving The Storm
As we are all aware, COVID-19 does not represent the typical financial crisis as it has come packaged with additional challenges. The added global health risks as well as what seems like never ending lock-downs, layoffs and closures drastically increase the difficulty of staying financially afloat.
However, the fact that so many Canadians can’t make it even two weeks, much less a month without a paycheck under normal circumstances is really mind boggling and frankly quite scary.
That we are so financially delicate as individuals makes our society fragile as ever. That so many are at the mercy of short term unemployment and the bureaucracy of the government. That we haven’t learned our lessons from the past. That so many of us could be doing so much better.
And, that the next time this happens, we will still be unprepared as ever…
If we don’t learn from the lessons that COVID-19 has taught us about how to survive a storm, then I’m not sure we ever will.
This time however, COVID is something that has so pervasively affected the entire world, young and old, working people and school kids, that everyone WILL remember what a profound effect it had.
As such, I want to emphasize and encourage the importance of setting yourself up financially as best you can while the going is good, to counter balance the times when the going gets bad. Create yourself a descent buffer of savings and investments. There’s really no excuse for ignorance on ways to accomplish this because of the number of available resources in the present day and age.
Buffers apply not just for COVID or market crashes, but for any unforeseen circumstances in life (ie: job losses, health issues, dropped insurance, etc.). Save and invest as much as you can, as quickly as you can, to create the biggest buffer that you can. This is not exclusive to lower incomes as financial crises can and do affect everyone.
Being in the middle of a pandemic or major financial catastrophe isn’t the ideal time to start but it’s always better to be proactive rather than reactive. There are changes you can make now, even if small, to help you become more resilient in the future. Financial education being the most important of them.
The Known and The Unknown
I was fortunate enough to be working in a field that wasn’t directly affected by COVID-19. Of course you might be thinking that I’m in no place to offer advice to someone who’s been out of work because of the pandemic. You would be wrong. I have had a very similar financial experience during my last parental leave. I took the extended 15 month option which reduced an already small amount of E.I. to and even tinier level (just over $300/week). Even with that minuscule assistance, I still witnessed our bank account dwindle quite quickly to shockingly low levels. Though we had already planned out the length of the leave and saved a descent buffer before hand to accommodate the low rate of E.I., it is never a pleasant experience to witness more money flowing out of your accounts than into them. I was sure glad to have that buffer though.
Of course, COVID-19 isn’t something that was known was going to happen, but that doesn’t mean you can’t be better prepared for the unknown when the next global or personal crisis comes around. Learn from the present. Learn from the past. Know better, then do better. You’ll thank yourself in the future because of it!
*While this should apply to most people, including the average Canadian (ie: middle class, and up), there are those in society who have truly legitimate struggles. Those of which who were born into poverty, experiencing racial injustices and prejudices, rare expensive medical illnesses, severe mental or physical incapacities, etc.
