A Financial Storm is Brewing – Will Alberta Escape It?Most of our Calgary and Edmonton, Alberta clients recalled the movie ‘The Perfect Storm’ wherein a group of regular people trying to earn a living ended up in a situation beyond their control and into a storm of gigantic proportions. The unexpected global pandemic is driving us toward a ‘Perfect Financial Storm’. The following are five common circumstances that can cause individuals to incur financial difficulty.
- Circumstances beyond their control: I doubt that the average person out there ever imagined the current pandemic and planned for any costs associated with that in their budgeting or savings plans. For many, the pandemic has led to job loss, reduction in hours, restrictions in social gatherings, travel, visiting with elderly parents in care home facilities, and working at home while raising children and trying to keep them safe as well, all of which increases pressures and stress not only on our finances, but also on our mental states as well.
- Reduction or loss of income: As a result of the pandemic, many people are currently being laid off or having their working hours reduced as their employers are facing reductions in their income as well. As an example, people are not going out as often to restaurants and are being restricted to less than capacity seating. This leads to a reduction in staffing needs and hence the amount of revenues being derived from sales, and accordingly reductions to the employee’s income. For those who sought the assistance of CERB monies and are now transitioning over to Employment Insurance, a further drop in income will occur, leading to additional stresses in their lives.
- Separation and divorce: As income decreases and the bills start piling up, additional pressures will be faced by families currently struggling to make ends meet. While historically, the lack of income does not necessarily collate to the separation and divorce statistics, the way in which money and credit is used can lead to the conflict within the family. If one individual is a saver and one is a spender, conflict may arise. The actual separation or divorce further complicates the financial situation as additional expenses arise such as the costs of maintaining two households, legal fees, and child support and/or spousal support obligations.
- Illness or medical reasons: The pressures associated with the stress of dealing with loss of income, separation, and divorce adversely effect ones’ health and well-being. This can lead to further situations wherein the individual cannot function and work, leading to further pressures with respect to being able to deal with financial obligations or turning to the use of credit to satisfy some degree of control in their lives.
- Poor or excessive use of credit: While an individual may have been able to deal with their use of credit while they were gainfully employed or living in a two income household, the pandemic has in some circumstances had a profound impact on this ability. Some relief was found in the deferral arrangements that they entered into with their financial provider; however, these agreements are and will be coming to an end, and there will be an expectation that payments will recommence. This again will lead to increased stress on individuals already stretched out to the maximum. At some point, some individuals will “hit the wall” so to speak and need assistance in figuring out what the next steps can or should be in dealing with their financial situation.