Slash spending, tap savings, put Mom and Dad on standby: A millennial’s guide to surviving on CERB

As soon as Duke, a 27-year-old electrician, received his first $2,000 from the federal government’s Canada Emergency Response Benefit (CERB), he realized it would fall well short of covering his expenses.

Duke, who did not wish to have his surname published, is a part-owner of a small electrical company, but was forced to stay home and apply for government aid in April when the COVID-19 outbreak grounded his business. Though he lives with his parents, Duke still has large monthly expenses in the form of a car payment, substantial student and credit card debt and a pricey phone bill.

Finding a way to pay them while earning only a third of his regular income isn’t possible, he says.

“After I pay my car and student debt, my credit card debt and phone bill, I don’t have anything left,” said Duke. “I have to dip into my savings to pay the bills I have.”

About seven million Canadians have applied for financial relief through the CERB, and for the millennials among them, many of whom saw their entry into the job market stunted by the 2008 financial crisis, the prospects for their finances are grim.

For those living in major real estate markets like Vancouver and Toronto, the challenge is even greater. CERB cheques aren’t enough to pay the median rent on a one-bedroom apartment in either city.

Simply hacking spending to the bone won’t be enough to save them, according to multiple financial advisors. If you’re a millennial, you might be looking at one of three plausible solutions: Dip heavily into your savings, take on debt or make the dreaded decision to move back in with your parents.

Before you get there, Sara Zollo, a financial advisor at Sun Life Financial, says that cutting your spending to its essentials should be the first step. She pointed to food, internet, cellphone and basic utilities as the things that millennials are unlikely to be able to go without.

A woman passes signs calling for a rent strike in Toronto.

A woman passes signs calling for a rent strike in Toronto.

Chris Helgren/Reuters

With a bare minimum of $300-$400 for groceries, $100 for internet, $75 for a phone and $100 for utilities, that would likely add between $600 and $800 on top of rent.

That’s the best-case scenario, assuming your transit costs are now close to zero because you’re staying at home, you’ve taken advantage of a six-month interest-free reprieve on federal student-loan payments, cut your direct deposits into investment accounts, cancelled gym memberships and pulled the plug on your Netflix subscription.

At that point, millennials should prioritize using their savings — hopefully, she said, they have enough to cover three months of expenses. For those who are already living paycheque to paycheque, debt may be only the recourse.

“We can’t pull a bunny rabbit out of a hat at this point and it’s going to be a matter of dipping into debt, hopefully on a line of credit versus a credit card,” Zollo said. Although the big banks are slashing interest rates on credit cards, Zollo still thinks it’s best to go with a line of credit instead.

We can’t pull a bunny rabbit out of a hat at this point and it’s going to be a matter of dipping into debt

Sara Zollo

In the short-term, millennials might be able to put off some of that debt with, yes, more help from the federal government. Low-income individuals will have received a $400 GST tax credit in the second week of April. The Canada Revenue Agency has also pushed the tax filing deadline back to June, but Zollo suggested filing immediately if you’re expecting to receive a return.

If all else fails, Nicola Wealth financial advisor Kyle Westhaver said, you’re going to have to ask for help. If your landlord has a heart, he or she may pity you and give you a break. Many in Toronto have already indicated that they’re willing to work with tenants on deferrals. Going the extra step of laying out your budget, step-by-step, and showing them that CERB payments aren’t going to cut it would strengthen your case, he said.

Millennials value their independence so Westhaver’s next solution may be a difficult to accept, but likely inevitable: Move back in with your parents. You’ll still have to pay rent, but the additional costs should be taken care of. If you can’t afford to live in a big city, it might help to leave.

If you can’t afford to live in a big city, it might help to leave

“What I’ve seen some people do is they know they’re not going to be working so they’ve decided to pack up and drive back to the East Coast and move in with their parents,” Westhaver said.

Most of all, if you’re in a situation where you have to go into debt to continue to stay afloat, this experience should serve to convince more millennials that an emergency fund — one made up of three to six months of their salary — should be a priority for next time. “Remember,” Westhaver said, “this will happen again.”

Luckily for Duke, he’s managed to consistently put away about a quarter of each paycheque since he started working. But even that will only take him so far. If social distancing measures are still in place in a few months, he worries his savings will have been exhausted. He might have to find another job or study the possibility of lowering his expenses even further.

He’s already trimmed his debt payments, which normally cost him $1,000 per month. He could look into selling his car to avoid the payments and insurance charges, which come down to another $1,000 per month. His $300 grocery bill probably can’t be trimmed, but there’s wiggle room in his cellphone plan for which he pays $100 per month.

If all else fails, he’s thought about taking a loan out at the bank. That’s the absolute last option.

“That would not be ideal,” says Duke, recognizing that others are in a worse position. “I don’t know how they’re living off that $2,000.”

Financial Post

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