7 Financial Challenges to Expect for Canadians in 2021 and What To Do About It | Insights from a Financial Consultant

COVID-19 brought a lot of unexpected financial challenges for many Canadians and while we enter 2021 with new optimism, here are 7 financial challenges that we should expect in 2021 and how to best prepare for them. If you’re new to my blog, my name is Thomas and I have been a financial consultant for over 10 years helping Canadians with retirement, wealth and insurance. If you’d like a complimentary consult to discuss your personal finances and see how I can help you, please reach out and book a time with me

No one is going to forget about the year 2020 due to COVID-19 and let’s be honest, it’s going to impact us into 2021 and even longer. How much can we expect it to continue to impact us though? Let’s dive in.

This is the new normal 

Some people will try to reject this as the new normal. But the reality is, many of the changes that came about in 2020 are here to stay. Yes, COVID-19 will be gone hopefully soon but the effect is permanent and we are entering a new era. We have already seen a shift in how businesses work and operate. Business owners are forced to have their employees work from home. Remote teams is the new buzzword and it’s likely going to stay. 

At the same time, we also saw a spike in cybersecurity issues. With more and more people working online this will likely stay as a part of our lives. A whole new “normal” of life has evolved from 2020 and not everything will go back to how it used to be. 

Goodbye mom and pop shops 

2020 was already extremely difficult for the little corner shops on the street and unfortunately, we expect to see more closures from our favourite small businesses in 2021.

The transition into the digital age continues. Restaurants are only doing delivery and take out. Physical stores are transitioning to ecommerce and teachers continue to hold classes through Zoom. 

Just check out the malls nearby. Retailers are filing for bankruptcy or they’re focusing on online sales which small shops are unable to keep up with this. Small businesses do not have the cash flow nor the time and resources to transition. According to a Toronto town report, already 37% of local mom and pop shops were unsure if they would recover from the effects of the pandemic. The reality is, the businesses that cannot adjust to the new ways likely won’t survive. 

Insurance Premiums Skyrocket 

Insurance for Canadians is getting more expensive due to two reasons: 

  1. During the pandemic, more and more life and health cases have been claimed and when the more is claimed, insurance premiums skyrocket. The demand increases so the price increases. 
  2. Insurance companies collect the premiums and mainly invest in fixed income such as savings, term deposits and mortgage lendings. However, with lower interest rates, the fixed income isn’t yielding enough. When it comes to life insurance, the data shows that compared to 2019, individual life insurance saw a significant bump in April and May of 2020. Well, in April and May this can be explained as natural volatility. But now that we are facing a second and third wave of COVID-19, it’s a good idea to watch the trends. 

The good news is that in Canada, life insurance plans are grandfathered. There is a contractual obligation for premiums to never increase once set in place. So, if you already have life insurance, then you are relatively safe.

But what about people who don’t have life insurance? 

I’d urge everyone to think about it now rather than later. Set up a time with me if you’d like to discuss options available for you. 

A wider wage gap

2020 has only widened the wage gap. The pandemic has harmed many many industries, especially in the food and small retail business industry. It’s also affecting the middle class, as office jobs are disappearing. Companies realize that remote teams have potential but for now, they need to focus on saving money, so they are downsizing and letting people go. Think about it, if this continues, people will have a harder time to find jobs, and with diminishing income adds a new layer of pressure to find a job, even if it’s not the one they want. Let’s assume that with the help of the vaccine, everything goes back to normal. But then we’ll see an increased amount of people job hunting which increases the competition. 

While some sectors are suffering, it’s not bad for everyone. For those in tech or those who have the skillset to work online, their income has improved. So the wage gap will widen as some industries and sectors will fall while others thrive. 

People forced to retire

A report in June says that 74% of Canadians will retire before the age of 65. 

The report also indicates that retiring early was already a trend before the pandemic.

But the pandemic has sped up the process for many. Business suddenly disappeared or people were let go by their employer. This is a very unfortunate fact that some have been forced to retire. And in 2021, I believe even more will face it. Without income, it sometimes would make better sense to take benefits early. It makes sense to seek help to figure out how to adjust and how to make it through the situation.

Cost of essentials increase

Locally, the cost of goods increases. Especially restaurants have to raise their prices to make up for their shrinking customer base. The price of food will likely go up. In October, a report from Dalhousie University indicated that food prices all over Canada will increase by 2-4%. The average Canadian family will spend $12,667 on their groceries a year, which is $487 more than in 2019. Just go to the grocery store near you and check how much the meat and toilet paper increased in price. Or, pay a visit to your local food court and compare the prices to last year’s. 

Taxes will jump (Like a lot!)

The Canadian government spent over 150 billion to keep people and businesses to stay afloat, but who’s going to pay the bill? A recent article on Ottawa News stated that the government expects the country’s deficit to reach $381.6 billion by the end of the pandemic. If widespread lockdowns return, we are talking about $400 billion. The government is doing this to support and protect people, which is a good thing. But who is going to pay the bill? The consequences will likely be higher taxes for all of us. Now what they can do, they can charge a higher capital gain tax on your investment. Instead of 50% of capital gain will be taxed, they can move to 75% or 100%. And another one that I can think of is the government can remove the principal house exemption. Where even if you sell your principal residence you still have to pay tax!

What You Can Do Today

I’m not sharing these to make 2021 look hopeless but instead to share these insights so you know what to expect and how to prepare for it. 

1. Save much much harder

In tough times, cash is king so become a stricter saver. If your job doesn’t provide enough money to save anything, then get a part-time job and look for opportunities to bring in additional income. Now is the time to hold onto as much money as you can, and invest somewhere that gives you a return! Build that emergency fund as you don’t know what 2021 may bring. 

2. Invest in yourself

If your job is in danger because of the pandemic then it’s time to branch out. We are shifting from labour economy to skill economy! The more problems you solve, the richer you are! My suggestion? Read books, maybe even take a course and know which skills are in demand right now. Absorb as much information as you can. Besides learning a new skill, you can also work on monetizing a hobby or skill you already have. Yes, at the beginning you might find yourself uncomfortable but there will be a time that this will scale and you’ll be happy that you invested time, money, and knowledge in yourself.

3. Rethink your emergency plan

Think about how well you are prepared for what’s to come. Do you have an emergency fund? If not, start building one now. I always recommend have at least 3 months of savings somewhere that is easily accessible. Are you in debt? If yes, what can you do to stay afloat? Reach out to people who can teach you strategies to deal with debt that suits your needs.

4. Get life insurance 

Do you have life insurance in case anything happens? This is crucial as premiums will rise soon. But if you take care of your life insurance now, you can lock both your payment and health. 

5. Focus on the right things 

Finally, are you focusing on the right things or are you stepping over dollars to save a few pennies? Yes, I said you want to be a more aggressive saver in this time but saving pennies won’t get you anywhere. Just make sure to have emergency savings and supplement your income with an additional income stream. 

What do you think? Are you prepared for these financial challenges if they arise? Let me know in the comments below. If you enjoyed learning more about building wealth and finance for Canadians, please subscribe to my YouTube channel where I post new videos weekly here.