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How to Financially Handle Coronavirus Layoffs
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Unfortunately, as the coronavirus (COVID-19) spreads, talk of working from home, businesses closing, and mass layoffs, intensifies. While stocking up on household goods and being prepared for an extended stay at home is important, Canadians need to also make sure they are financially prepared for the economic effects of the coronavirus (Covid-19).
Travel bans, decline in business activity, drop in oil prices, cuts on mortgage rates province-wide shutdowns are just a few events that have occurred amid the spread of coronavirus (COVID-19). The spread of coronavirus (COVID-19) is particularly affecting businesses in the travel, retail, and restaurant industry. In fact, according to an article by the CNBC, Expedia plans on cutting 3,000 jobs to tackle travel bans and the decline in the travel industry due to the virus’ spread.
The chaos it has been causing is likely to generate more layoffs in the future. According to an article by the Global News, “Dan McTeague, president of Canadians for Affordable Energy, said the coronavirus (COVID-19) outbreak has probably accounted for a 40 percent drop in the price of oil”. This is expected to cause layoffs in the energy and oil industry in Canada, just as it did when oil prices dropped in 2014 – 2015. Moreover, the virus has also disrupted global supply chains and shut down factories in China that Canadian businesses rely on for inventory. According to an article by the CBC, with China being one of Canada’s biggest importer, continuous disruptions in the supply chain can result in businesses needing to lay off workers, just as Expedia has.
Moreover, being quarantined for 14 days or more as a preventive measure can be difficult for people who earn hourly wages or for those living paycheque to paycheque. With the economy shaking and layoffs and income cuts being a possibility in the future, it is best to have a contingency plan.
Importance of Having an Emergency fund
Events like these truly emphasize the importance of having an emergency fund. While consumers with extra savings are able to curb the effects of income loss and/or unexpected expenses, others cannot. An emergency fund is particularly important for people who come from lower-income families where income cuts and unexpected expenses can have a significant negative impact on their financial survival. We stress this point as a recent survey we conducted, showed 72% of credit-constrained (a sign of poor financial health) people don’t have emergency funds.
What Should You Do If You’re Laid Off
In the event, you are laid off, whether as a response to the outbreak or not, there are a few things you can do to cushion the blow.
Apply For Employment Insurance (EI)
Employment insurance is available to those who have lost their job through no fault of their own like mass lay-offs, company bankruptcy, company re-structuring, etc. Be sure to apply for it immediately as you can lose out on benefits if you wait to claim EI four weeks after losing your job.
Severance Pay: Look Into What Your Employer Owes You
Severance pay is money your employer must pay you given that you lose your job due to external factors, as in, it was not your fault or decision. When this happens you may be entitled to a severance package that includes a certain amount of money. The money owed is dependant on a number of factors such as:
- The province you live in
- Details of your employment contract
- Your salary amount
- Reason for dismissal
- How long you worked with your current employer
As you may have heard, the government of Canada has released its economic response plan in response to the outbreak. The plan included a $52 billion dollar aid package that will provide Canadians who are affected by coronavirus (Covid-19) with the financial aid they need. In particular, the Canada Emergency Response Benefit (CERB) package will provide Canadians with $2,000/monthly for 4 months if you qualify. Click here to learn more about government income support for workers.
With limited income coming in from your severance pay or EI, managing your spending with a budget that takes that into consideration is key to keeping up with bills until you find a new job or potentially get rehired. A budget can also help you organize your finances and show you where you can cut costs. It may also be in your best interest to call some of your creditors to see if you can work a new payment plan or defer your payments for a couple of months. Regardless, a budget is key to managing and prioritizing your financial commitments.
Unfortunately, it may be necessary for certain consumers to seek external help in the event they lose their main income stream because of the coronavirus (COVID-19). For smaller expenses, a credit card may be your best option, but the high-interest rates need to be taken into consideration. But for those we require a more long term solution, these are the option you will want to consider.
A personal loan is an installment loan that you repay over a period of time. It can be used to consolidate your debts or to pay off any large unexpected expenses. It is a great way to reduce and spread your costs so that you are not overwhelmed with having to make a big payment at one time. It may be hard to get a personal loan while unemployed, but there are lenders out there who will accept your EI and severance pay as a source of income. However, do be aware that these lenders will likely charge high-interest rates due to a lack of security. As such, this should only be used if you know you can pay the loan back once you’re back on your feet
Car title loan
A car title loan is a way of borrowing money against the value of your car. Meaning, if you own a car, you can use it as collateral to borrow money. The amount that you qualify for will depend on the value of your car. It can be an expensive way to borrow and can lead to you losing your car if you default on your payments. But, it is a fast and easy way to get some extra cash to keep you going.
Home equity line of credit (HELOC)
If you’re a homeowner who has just lost his job, you may be able to use the equity in your home to get a HELOC. A HELOC is a great solution considering they typically charge lower rates than a credit card or a personal loan. They also have longer repayment plans, which can give you the time you need to find a job and recover from your financial slump. However, this option is a bit of a double-edged sword. Though you get a lower interest from the collateral you put up, it also increases your risk of losing your home if you are unable to make your payments. While adding more debt to your account is usually not a good idea, sometimes a HELOC can provide the best support during tough times.
It’s important to keep in mind that keeping up with loan payments is a serious financial commitment, taking on debt you cannot afford will have lasting financial consequences.
The stability of the future economy is unknown as coronavirus (COVID-19) continues to spread. It is best to take precautions now and start focusing on building your savings. A budget, as previously mentioned, is one of the best ways to save and cut costs in times of financial crisis. In fact, according to the 2019 Canadian Financial Capability Study (CFCS), people who used a budget were able to save and cover emergency costs more than people who did not budget. Overall, stay informed and have a plan to deal with the worst-case scenario.
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