The future of money: after the pandemic, will you have your own “financial pandemic”?
The global pandemic changed everything in 2020. Now it will change everything forever. This is part of the series “The Future of”, in which BNN Bloomberg looks at what is to come for our transformed economy and our daily lives.
Jahmeelah Gamble is being honest about how she got through the days of the pandemic.
“The app I use to track my mental health is called Zara,” she tweeted recently, referring to the clothing retailer. “Considering the number of orders I have placed in the last month, you can say that I am [sad emoji]. “
The 33-year-old trainer based in Mississauga, Ont., Admits that online shopping and daily takeout rounds are coping mechanisms, a temporary antidote to stress.
“I’ve reached a point where nothing feels good. You have money, but you can’t go out and spend it. You can’t celebrate. The only way to feel connected to the outside world is to buy something online, ”she says. “With COVID, we don’t control things. We cannot do what we want to do; but we can buy what we want to buy. It gives me the impression that things are still normal.
With the pandemic, our world seemed to change overnight and suddenly the state of our finances became more evident, more pressing, and for many, perilous. Some of us have adopted spending, saving, borrowing, and investing behaviors that are unique to this era – ranging from helpful to harmful.
But with officials touting the light at the end of the tunnel, how has the pandemic affected our financial habits and financial values on the other side? Will the trauma of financial turmoil change us forever? More importantly, how can we use the lessons for our own good?
According to numerous polls, Canadians have become more stressed about money (among a litany of other worries); an FP Canada report released last summer, for example, found that nearly half of respondents lost sleep over their finances.
All of this anxiety changes your brain function and leads to irrational financial decisions, says David Lewis, client director of BEworks, a behavioral economics consultancy.
This blurs our ability to process complex information, which is necessary when making financial decisions. It also causes us to focus on the present rather than the future. It could take the form of retail therapy, as it can be in the case of Gamble and if I, too, am being honest, in the case of my family. It could also take the form of accumulating more debt without a repayment plan.
As of October 31, Canadian banks were offering mortgage deferrals or prepayment options to nearly 800,000 Canadians and processing over 478,000 credit card deferrals, although most of these programs have ended. Canadian households owed an average of $ 1.71 for every dollar of disposable income in the third quarter, compared to $ 1.58 in the previous quarter, according to Statistics Canada.
“We engage in these bad habits. We are in debt, ”says Lewis. “But once the global pandemic is over, will you have your own financial pandemic?”
Although we are swamped by the same storm, we are in different boats. Some Canadians are doing better than others. Despite being in a second wave of the pandemic, consumer spending edged up in November compared to last year. And with less spending, households saved more than $ 150 billion more than normal (the savings rate hit a record 27.5% in the second quarter of the year), according to a report of the Bank of Montreal.
A Bank of Nova Scotia poll found that 61% of Canadians who save more choose to build an emergency fund. While it is safe to save for the unexpected and for other purposes, hoarding is not.
“The Depression Generation to this day don’t want to throw things away because they remember the incredible scarcity during this time,” Lewis says. “Maybe this generation will see the volatility in the market and say it’s too dangerous, maybe I’ll avoid it.”
People already tend to be nearsighted and take no risks when it comes to investing. “If you take your money out of an investment account and stick it in a savings account, you’re not going to beat inflation. If you avoid risk, you avoid returns. “
Behavior experts say recognizing that you may be thinking irrationally about money is half the battle. The next steps involve setting up a system to keep you in control. For example, Lewis says a coworker deliberately locked himself out of his online investing account to keep from obsessively staring at him. Another strategy would be to consult your peers or a coach. During the stock market crisis in March, investors in droves contacted their advisers in panic.
“I literally had to steer people away from the edge,” says Jackie Porter, Certified Financial Planner at Carte Wealth Management Inc. “Intervention is critical. Especially during this time, people need someone to talk about their fears, to walk through their plans to help them see the horizon. It gets people thinking about the future and it’s not tomorrow. It’s not in five years. It’s not even 10 years from now. “
“The generation of depression to this day don’t want to throw things away because they remember the incredible scarcity during this time.”
There is good scientific evidence that people are adaptive and in five or even ten years we may have readjusted to our lives, unless financial damage has been done, some speculate.
“I am skeptical that a lot of the changes will last and persist. I think people will be eager to go back to what they used to do, ”said Douglas Porter, chief economist at BMO.
And what did we do before?
“Looking back to the good old days of a year ago, the biggest concern in Canada was the state of household finances. The flow of savings was quite low. Household debt was relatively high. ”
We will have those concerns, yes, but we will also have perspective. But it will take a conscious effort to maintain useful epiphanies and financial habits as we fall back into old and familiar routines.
“The bigger question is, what kind of values, priorities and behaviors will remain prominent in people’s minds?” says Hal Hershfield, associate professor of marketing and behavioral decision-making at the Anderson School of Management at UCLA.
“A lot of people are surprised at the kinds of things they enjoy now and the kinds of things they can go without.”
Melissa Leong is the author of the award winning financial guide Happy Go Money.