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With talk of a looming recession increasing daily, fears over job loss are on the minds of many Canadians, but advisors can help clients prepare financially for that potential outcome.
More than two-thirds (69 per cent) of Canadians predict the economy will fall into a recession by late 2022, according to a recent poll conducted by market researcher firm Maru Public Opinion.
Coupled with rising interest rates, inflation hitting a decades high, and volatility in financial markets, advisors say now is the time to talk to clients about actions they can take to protect themselves should a job loss become their reality.
“[Recession] impacts people in different ways. It could be job loss, reduced income, less discretionary spending, which can really drive a lot of emotions as well,” says David Gunn, president at Edward Jones Canada in Mississauga. “Our position and recommendation would certainly be that it’s important to uncover which of these are risks and plan for them individually.”
Everyone’s situation is different and it’s important to consider establishing emergency funds of the right size and determine what the impact would be on potentially longer-term goals, if any, he says.
It’s also important to think about the steps that need to be taken as people contemplate the “what ifs,” he adds.
“There’s the administrative side of things, such as replacing insurance as you may have insurance provided through your work,” Mr. Gunn says. “We would encourage people to look at individual insurance purchased outside of work on their own.”
How to cut back expenses
For clients without the extra cash flow, the idea of setting aside some money might only be an option for those who are actually serious about cutting back on their spending, says James McCreath, portfolio manager and senior investment advisor with The McCreath Group at BMO Nesbitt Burns Ltd. in Calgary.
Mr. McCreath says there are often 10 to 20 monthly expenses – think gym membership and subscriptions for streaming services that, if cut back, could give people extra money to put into a rainy day fund.
“If clients can scrutinize that list and maybe think if there’s two or three of those they can get rid of, that will make a difference,” he says.
“This is a discipline that anyone can undertake because these expenses start to add up and, after a while, you look at them and realize, ‘We’re only using this for an hour a month, why are we paying this monthly recurring fee of $10?’”
Mr. McCreath also says that this is a time for clients to avoid any risky investments. However, it’s important to remember that what’s risky for one client could be okay for another, so assessing a person’s tolerance level is key.
“Everyone makes mistakes or has poor investments and it’s a really important time to be honest about some of those that potentially can underperform or have already underperformed drastically,” Mr. McCreath says.
“If they have limited prospects for appreciation over the next three to five years, clients might as well just get them off the books and direct that capital at maybe more conservative or dividend-paying ideas.”
Start eliminating high-interest debt
Bruce Sellery, chief executive officer of Credit Canada Debt Solutions in Toronto, spends his days helping Canadians face their reality when it comes to sticky financial situations. He notes it doesn’t matter how much a client makes, the idea that you can’t have the things you can’t afford is a basic piece of advice that should be followed.
Nevertheless, many use high-interest credit to fill the gap between their needs and wants – and doing so is costly.
“If I could snap my fingers and have Canadians realize one thing, it is the devastating effect of high interest rate debt,” Mr. Sellery says. “They look at paying the minimum as the job. But it’s not the job – the job is eliminating that debt to zero.”
His advice is if a client has credit card debt, they need to get rid of it right away. That may require them to get a side gig to make the extra money – and now might be the time to get that second job.
The job market is looking pretty good as far as employment numbers go. In June, the unemployment rate fell to a new record low of 4.9 per cent, according to Statistic Canada.
Mr. Sellery also says that people with current employment should make sure they’re putting their best foot forward at work and avoid things like being late or missing important deadlines.
He adds that people shouldn’t wait until they lose their job to prepare for the job hunt. They should be making those arrangements now.
“Let’s just take the case that I’m going to get fired in six months. What am I going to need to do? I’m going to need to fix my LinkedIn profile. Do that now,” he says.
“I’m going to be calling co-workers I had five years ago to see if they’ve heard anything [about job prospects]. Do that now. I’m going to need to update my resume. Do that now.”
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