Your financial wellness and public policy

By Dian Cohen
Your financial wellness and public policy
Dian Cohen (Photo : Courtesy)

There’s a drama is playing out in the stock markets of the world that could very well affect you where you live. It’s about whether or not we will get a spike of inflation and how that will affect our job and economic recovery from the pandemic.
I grant that if you were born after 1970 you have no direct knowledge of how damaging inflation can be to your personal finances; take it from your old granny (born after 1930), it’s something to be aware of.
First the drama: stock markets, which have been going up in an almost straight line for a year, spent the last week on a sickening roller coaster ride – the TSX moved up and down 37 per cent from peak to trough in just a few days. Most commonly given reason: the yield on bonds has been on a tear – reaching a level that most analysts thought we wouldn’t get to until 2022.
Why is this important? People save or make money by buying assets with different levels of risk – the share price of companies for example, isn’t guaranteed. Or they save or make money lending their money for an interest payment – bonds for example, yield rates of interest. The more you can make on a stable rate of interest, the less interested you are in taking risk.
The stock market roller coaster is because there’s no agreement on whether the government will stop shoveling money into the economy: government transfers are what’s keeping millions of people from starving and thousands of businesses from going bankrupt. But for people who have not become unemployed, they’re just saving what they can’t spend in a locked down economy – our household savings rate is almost at an all-time high.
Analysts are arguing about: will those savers go on a shopping spree when the economy opens, triggering price inflation because of supply shortages? Will the government stop supporting the broken parts of the economy – those unemployed and under-employed – thereby creating permanent scars on parts of the workforce and certain industries? And possibly shoveling us deeper into recession or depression and deflation. Indeed, employment has not been picking up sufficiently even as COVID illness and deaths are declining, and long-term unemployment – people out of work for 27 weeks or more, who have less chance of getting back into the workforce has soared to new heights.
When you’re arguing about the future, you can’t know the answer till you get there. And the answer depends on the virus. If the vaccines work well enough and are administered widely enough to stop the new variants and allow the economy to recover a certain amount of normalcy later this year, all the government transfers might be excessive. Rising consumer demand combined with supply constraints could spark inflation. If, however, the pandemic and lockdowns continue into summer, employment won’t recover and more small businesses will fail. The stimulus package, as large as it is, may even be too small.
The experts are split and no one really knows. And to complicate matters further, past performance data is patchy – when so much of the economy has actually been destroyed in one year, it’s hard to use the statistical models of the past to estimate the present state of, say, unemployment – we’re probably underestimating it.
Canada’s mortgage lenders are jumping the gun: TD Bank has raised its 5-year fixed rate by 0.5% to 2.24% and, Canada’s comparison service, expects fixed rates to rise within the week, just as the spring home buying season begins.
How do you position yourself? The pandemic has been a wake-up call for all of us who haven’t paid sufficient attention to our personal financial wellbeing. Setting aside time to understand where you are financially and where you want to be is a must. Back of an envelope or in your head won’t be good enough to secure your short or long term success.

Dian Cohen is an economist and a founding organizer of the Massawippi Valley Health Centre.

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