It’s time to reckon with a major side effect of COVID-19: Financial trauma

OPINION: Because of the pandemic, many Canadians are experiencing chronic financial stress — and that can have serious, long-lasting psychological consequences
By Melissa Alice - Published on Aug 31, 2020
Before COVID-19 led to the global lockdown, Canadians were already in a precarious financial situation. (iStock/wwing)

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In the booming economy before the pandemic, Canadians were already hitting record debt levels and feeling financially squeezed. Now COVID-19 is amplifying this problem — and it's going to get worse before it gets better.

Tent cities are springing up in major cities. Entire industries and job markets have been obliterated. Those who were already walking the fine line between survival and ruin are being pushed over the edge. Much like the economic recovery, the personal financial recovery for many will be long and painful. Welcome to financial trauma in the time of coronavirus.

In a money-driven society, poverty and the inability to “properly” manage money are often perceived as inherent character flaws. As a result, those who struggle financially often do so in silence, unable and/or unwilling to seek help and resources until it’s too late — often falling through the cracks of the system or living in a vicious cycle of debt and poverty. It has been only in the past couple of years that financial and medical professionals have given a name to this devastating phenomenon that affects a rapidly growing number of families and individuals. And experts only recently began connecting the dots between dysfunctional childhoods, financial abuse, discrimination, traumatic life events, and present-day financial difficulties. COVID-19 and the global crisis are now amplifying this issue, making it impossible for society to ignore.

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Financial trauma is characterized as a dysfunctional reaction to chronic financial stress and financial post-traumatic stress disorder — the physical, emotional, and cognitive deficits people experience when they cannot cope with either abrupt financial loss or the chronic stress of having inadequate financial resources. According to research psychologist Galen Buckwalter, financial trauma affects 23 per cent of adults and 36 per cent of millennials. Paralyzed by fear and uncertainty, people with financial PTSD can find it nearly impossible to address current financial situations and plan for the future. Because of the increase in isolating behaviours and destructive coping mechanisms, such as avoidance and substance abuse, that the pandemic has brought, financial trauma and PTSD — which, experts say, disproportionately affect young people, women, and people of colour — are now entering the public consciousness.

Before COVID-19 led to the global lockdown, pausing industry and commerce, Canadians were already in a precarious financial situation. According to Statistics Canada, in the first quarter of 2019, household credit-market debt as a proportion of disposable income was 177.6 per cent. This means that, in the first three months of the year, the average Canadian household had almost $1.78 in debt for every $1 of income. Credit-rating agency Equifax Canada said that, by the end of 2019, consumer debt (commonly referred to as “bad” debt) had increased 2.7 per cent. There have been improvements in poverty rates across the country: 3.4 million Canadians, or 9.5 per cent of the population, lived below the poverty line in 2017, down from 10.6 per cent the year before, and the child-poverty rate decreased from 11 per cent to 9 per cent. But these efforts risk being undermined by the pandemic and the resulting global economic crisis.

The Bank of Canada forecasts that mortgage arrears could end up being double what they were in the economic crisis of 2009. At the end of the first quarter of 2020, Canadians owed $2.3 trillion dollars: $1.53 trillion in mortgage debt and $802.1 billion in consumer debt and non-mortgage loans. The household credit-market debt as a proportion of income has increased from 175.6 per cent to 176.9 per cent — a ratio of 1:1.77 — erasing virtually any improvements from the year prior. While Statistics Canada has not yet released Q2 numbers, experts are predicting that debt ratios will increase even more, despite the introduction of such government programs as the Canadian Emergency Response Benefit, the Canadian Emergency Wage Subsidy, and the recently announced Recovery Benefits.

While many parts of Canada are slowly reopening, the previous three months of closures have devastated small and medium-sized businesses across all industries — businesses that rely on foot traffic and human interaction have been the hardest hit. And many companies have used lockdown as an opportunity to trim employee headcounts. The impact? Three million jobs lost during the crisis, according to the Statistics Canada Labour Force Survey. That’s resulted in a record-high unemployment rate; two-thirds of consumers report being concerned about keeping up with bill and loan payments.

While financial trauma and PTSD are new areas of interest in psychology, and there’s no official diagnosis, experts recommend that those affected seek the help and support of mental-health professionals to address underlying issues and root causes. Trying to follow common financial recommendations, such as increasing income and decreasing expenses, is important. But so, too, is understanding that one is not alone and seeking support systems — particularly while society is being hit by the cascading economic effects of the pandemic, the economic shutdown, and mass layoffs.

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