COVID-19 and your finances: Financial planning during a pandemic

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With the spread of the novel coronavirus moving across the nation during what has been declared a global pandemic, many may be wondering what it means for their financial health.

YFile had the opportunity to interview Amin Mawani, associate professor of taxation and academic director, Health Industry Management Program at York University’s Schulich School of Business, to discuss how faculty, staff and students can approach financial preparedness.

Amin Mawani
Amin Mawani

Q: Given the outbreak of COVID-19, what are some of the biggest financial concerns for faculty and staff nearing retirement?

A: Depending on how fast the market recovers, faculty and staff in their 60s may want to or need to delay retirement by working an extra couple of years while the defined contribution component of York’s pension plan catches up with the investment values eroded in recent days due to COVID-19. Universities (employers) may want to anticipate delayed retirements.

Q: How about faculty and staff in their 50s – perhaps not as close to retirement?

A: Faculty and staff in their 50s may want to consider allocating their pension portfolio to less risky choices after the COVID-19 virus has been largely resolved – which may take months instead of weeks. They should plan to somewhat de-risk their investment choices once the markets have somewhat recovered, since they may not have time on their side to withstand a similar future outbreak if it occurs closer to retirement (when they are in their 60s).

Q: How can faculty and staff plan for potential financial challenges posed by the pandemic?

A: Staying healthy and by following or implementing Public Health guidelines so that their longer-term ability to earn income and saving is preserved. Perhaps choose more diversified portfolios in their RRSPs.

Q: What about students, what are some challenges they can expect to face and how should they address those challenges?

A: Students losing their part-time employment hours because employers are scaling back may have to rely more on OSAP and other student loans. Students may be eligible for potential easing of loan repayment terms or additional borrowing capacity during the pandemic.

If part-time employment opportunities for students dry up, one option may be to accelerate schooling by taking more courses to take advantage of lower opportunity costs. If the job market is less than ideal when they graduate, some students may wish to consider pursuing a master’s degree. York and other universities offer a wide range of graduate programs ranging from 12 to 16 months. Students should remember that university education is an investment in their human capital and not an expense.

Students should file their income tax returns on a timely basis even if they have no income to report since the federal government will use the existing Tax Administration System to provide benefits during the COVID-19 pandemic. For example, some of the benefits provided to Canadians during the COVID-19 outbreak will be via the existing Harmonized Sales Tax (HST) credit and the Child Tax Benefit Credit. Students are also eligible for the HST credit (for which the maximum amount has been doubled for 2020 because of COVID-19) and the Carbon Tax Credit.

Recent graduates paying back their Canada Student Loans will be able to defer repayments for six months at no interest cost because of the COVID-19 pandemic.

Q: And parents of students? What advice do you have for those helping to support their children who attend university?

A: Parents will need to appraise their own financial situation and may also have to downscale their lifestyles if their work hours are reduced (because they are unable for health reasons, or because the employer has scaled back because of inadequate supply chains or weak customer demand) or go on EI (employment insurance). Thus, some parents may not be able to help their kids as much as they wish during this crisis.

Parents, staff and faculty may be able to rely on deferral of mortgage payments offered by Canadian Banks during the COVID-19 pandemic.

Parents may also be eligible for the recently announced federal government assistance for lost wages due to business disruption during the COVID-19 pandemic. The federal government has set up an Emergency Care Benefit that would offer $900 bi-weekly for up to 15 weeks for: (i) workers who must self-isolate; (ii) those caring for a family member who is sick with COVID-19; and (iii) parents who are unable to earn income while schools are closed as a result of childcare duties. All these three emergency provisions will be available to Canadians regardless of whether they are eligible for EI sickness benefits.

Unemployment benefits under the EI program are also extended to provide income support to workers who lose their jobs or have their hours reduced as a result of COVID-19.