What will happen when CERB payments come to an end?

The Canadian economy is starting to sputter its engine after a long three-month hiatus. While Canada has not fully been given the green light just yet, certain provinces have eased up on the brakes and begun to re-open at different speeds. This is leaving Canadians with an overall sense of guarded optimism.

This is the good news. But it's also the bad news - here's why.

Approximately 10 million Canadians are receiving the Canada Emergency Response Benefit (CERB), adding up to $150 billion in direct federal aid for those who are out-of-work. Yet as businesses begin to open their doors, the government's financial support will soon run out.

No one can predict when the taps will go dry, but Canadians need to be reminded that things will change.

Recent statistics from the Angus Reid Institute underscore the country's illusory optimism. One-in-four say they are doing better now financially than this time last year, and three-in-10 believe their financial situation will improve by May 2021.

We must broadly ask, what does this mean? How will Canadians cope in this brave new world - one in which certain debt trends and macro-economic factors play a big role.

What happens when CERB payments come to an end, the deferral period for mortgages, rent, credit cards and loans is over and our economy is running business as usual?

Let's take a step back. Canada is one of the most indebted nations out of all the Organization for Economic Co-operation and Development (OECD) countries.

Long before the pandemic, Canadians struggled with their day-to-day personal finances and growing household consumer debt, owing an average of $1.76 for every dollar of disposable income by the end of 2019.

Canadians' inability to manage their debt comes to light when looking at the latest consumer insolvencies from The Office of the Superintendent of Bankruptcy.

Over the past year, consumer insolvency numbers steadily increased until April 2020 when they declined by 43 per cent from April 2019. Meanwhile, in February and March of 2020, mortgage refinancing figures jumped close to 400 per cent.

Concurrently, the Bank of Canada cut its key interest target rate by half a percentage point to cushion the economic shocks and ease the cost of borrowing.

Economists foresee a spike in consumer insolvencies and with time, the economic impact will soon hit in unexpected ways.

Canadians have a lot of pressing questions without clear-cut answers. Here are some issues that people need to start thinking about.

First off, how can people prepare to start making payments once deferrals expire?

Also, how will borrowing and savings decisions (to cover expenses during this time) impact the future? Decisions around credit card use, high-interest or payday loans, home equity borrowing, or cashing in RRSPs and other investments must be weighed carefully.

Finally, with some companies and sectors hiring - should people get a job or continue claiming CERB? Everyone's situation is different - but there are likely great opportunities at the ground level of the restarting economy.

As the summer brings with it the beginnings of a newly defined normal," Canadians should realize that it's more important than ever to prepare for what comes next.

Elena Jara is Director of Education at Credit Canada, Canada's first and longest-standing not-for-profit credit counselling agency.