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The shock phase of the pandemic’s effect on our finances has ended.

People are adjusting to the loss of jobs and income and becoming a little less pessimistic, weekly polling by the credit monitoring company TransUnion shows. But the data also suggest that the full range of damage to our personal finances has yet to be seen.

One concern is the plight of the young adults in the millennial and Generation Z cohorts. In Canada and around the world, they are being hit much worse than other generations. A concern across all demographics is rising use of withdrawals from retirement accounts to make up for lost income. There’s also reason to think that a second wave of pandemic-driven financial stress will hit when government benefits run out or personal savings are used up.

Pandemic personal finance for now is about surviving the loss of a job, reduced income or a big hit to your retirement savings. But we’re at a point now where it’s important to take a longer-term view to whatever extent that is possible. The persistence of the virus in a medical sense will have implications financially.

For the time being, people are feeling mildly less bad for their finances. In TransUnion polling, the proportion of the 1,000-plus people who felt their household income had been affected was 63 per cent in the first full week of April and 59 per cent mid-month.

“I don’t think a lot of Canadians had a plan when [the virus] hit, and the suddenness of it caught a lot of people by surprise,” said Matt Fabian, director of research and Industry insights at TransUnion. “We’re starting to see a layer of uncertainty fade now. People have gone from ‘I don’t know’ to ‘I have a plan.’”

Recently announced government support for students may further stabilize young adults, but the program only lasts through August. After that, they’ll join a cohort of young adults that are feeling the worst of the pandemic in a financial sense.

In TransUnion’s polling, 70 per cent of millennials (between the ages of 26 and 40) said they felt an impact from the pandemic on their finances in mid-April, as did 75 per cent of Gen Z (18 to 25). The overall average for the broader population was 59 per cent, brought down by baby boomers at 43 per cent.

Parents of the baby boom generation, remember how eager you were to help your adult children buy houses in the prepandemic world? Now, your help may be more urgently needed for rent, mortgage payments and other living costs. Here’s an opportunity for a generation less affected financially in the pandemic to help a much harder hit generation.

A quiet sign of financial stress is the growth in the number of people saying they are withdrawing money from tax-free savings accounts and registered retirement savings plan. TransUnion found that 28 per cent of people affected financially by the pandemic over all were drawing from these sources in mid-April, up from 24 per cent earlier in the month and 10 per cent at the end of March, while the use of TFSAs and RRSPs by millennials hit 32 per cent in mid-April.

“One of the long-term shocks of this that we won’t see for years is the impact on saving for retirement,” Mr. Fabian said. “I suspect that there’s going to be a lot of people whose retirement is going to be postponed because they have decimated their savings.”

If your financial survival is at issue, draw down on retirement savings for sure. But in the back of your mind, start considering how you’ll adjust in the future. Working longer is one option, but so is a recalibrated financial plan when the economy gets back to normal. One bit of good to come out of the pandemic would be more people cutting back a little on month-to-month spending to put more money into savings for retirement and emergencies.

In normal recessions, it takes roughly six months for economic distress to be seen in mortgage and loan defaults and insolvencies. Given that the pandemic dropped on us like a hammer, we may see this lag time compressed. Regardless, we should expect a second wave of financial distress if the economy doesn’t reopen before people use up their savings and government support comes to an end.

It’s soul-crushing to imagine more financial stress to come, but vital for both individuals and governments to start thinking about this. Some people will need yet more of a fallback.

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