How can I be well protected against the unexpected? - Financial Literacy Month

Ashleay:

Welcome to iA Financial Group’s “In Your Interest!” podcast. My name is Ashleay and today I’m joined, as usual, by my colleague, Chief Strategist and Senior Economist, Sébastien Mc Mahon. November is Financial Literacy Month, and throughout the month, the Government of Canada and several organizations are planning activities and distributing resources to help citizens better understand their finances and become a bit more financially resilient. Speaking of resilience, today we’re going to tackle a very important topic: How to be well protected in the event of the unexpected. Our guest today is our colleague Kenrick Hopkinson, the Education and Communication Director in the Group Savings and Retirement Sector. Hi, Kenrick!

Kenrick:

Hello!

Ashleay:

Thank you for joining us.

Kenrick:

Well, thank you for having me.

Sébastien:

It’s great to have you here.

Ashleay:

This year you led a discussion, Kenrick, as part of this special month, where you talked about various personal finance issues, including managing the unexpected. Could you maybe tell us more about the importance of having an emergency fund?

Kenrick:

Well, the emergency fund is put in place so that you can protect yourself against what I call “life.” So there are unforeseen things that happen, you know, where you should have some access to funds that you don’t really have to worry about. So that’s the idea behind an emergency fund.

Sébastien:

But I’ve often read that the advice is to have the equivalent of three to six months of expenses. Is that still the case?

Kenrick:

That is exactly what we’re telling our members. You know, try to put away at least three to six months. I know it sounds like a lot of money and it is a lot of money, but, you know, slow and steady, you’ll get there.

Sébastien:

Yeah. And that’s after tax. So let’s say someone is making $70,000 a year; 3 to 6 months is between $10,000 and $21,000. So that’s not small potatoes, but it’s still, you know, attainable.

Kenrick:

Correct. Yeah.

Ashleay:

Now, I have to ask, does a credit margin or something like that count? Because instead of having that $10,000, do I want to invest it and then take it out if I need it or does it… I’m throwing you for a loop… I can see his eyes going, "That’s not on the notes, Ashleay."

Kenrick:

That’s okay, that’s okay. It’s a question. You know, one thing about working at iA is you learn to dance in the moment. So here we go. In terms of investing, it’s a great opportunity if you have the money, it’s disposable and you want and can afford to invest it. Because remember it doesn’t guarantee that you’ll make money—

Ashleay:

No. Absolutely.

Kenrick:

—you have to be aware that you put that money into the market like everybody else. There is always a risk associated with putting it in the market. Hopefully—I cross my fingers—everybody makes money, but…

Sébastien:

In one of the emergency fund statistics that we found from StatsCan, we see that in terms of preparing for unexpected life events and expenses, almost two thirds of Canadians, so 64%, have an emergency fund sufficient to cover three months’ worth of expenses. We found this in a survey from 2019. Are you surprised by this number? Is it high? Is it low?

Kenrick:

It seems high to me. I think about myself and I’m like, “do I have enough for an emergency fund?” And the reality is I’m close to it, but I’m not there yet. So, you know, I would like to think that a lot of people have that put aside, but based on my interactions with members currently, I don’t think we’re there yet.

Sébastien:

But one thing with this statistic is that I also think that it seems to be high, but it’s encouraging. And if you’re listening to this and say, “Oh my God, everyone listening to this likely has their affairs in order and everything is good.” Well, no, that’s not the case. About a one third of the population according to this survey that is not there yet.

Kenrick:

Yeah, but the idea is hopefully that everybody can realize that there should be something put aside. And, you know, I preach it daily: A little bit is more than nothing!

Ashleay:

Yeah, absolutely. And are there other ways of managing your finances that can help you be better prepared for the unexpected?

Kenrick:

Well, you know, have a budget. So, it’s the B word that nobody likes to talk about. And I always tell people, if you think of major corporations, no one survives without knowing where their money is going. And the same goes for us as individuals. I think that we need to start taking a harder look at where this money is going. You know, we cut corners, we talk about, you know, “that coffee I had today doesn’t really go toward the budget”—but no, it really does, it’s money spent. So that’s one thing that I hope everybody does. Making a budget is the first and probably the most important exercise that anybody could do.

Sébastien:

As they say, money is fungible, you know, the money you spend somewhere is not tagged differently than other money. As you said, the budgeting part is so important. The same survey I quoted earlier says that about 65% of people that have a budget have emergency savings, and for those that don’t really follow a budget, it’s about 40% that have emergency savings. So having a budget, I mean, it’s pretty much the ground level for reaching those targets.

Kenrick:

Yeah. As an example from my own life: I, like many people, have a car and, as many know, things can go wrong and they did. But it wasn’t such a problem because I have money put aside. Thank goodness for that. It doesn’t feel good taking that money and putting it toward that cause, but at the same time, I’m very happy that it was all paid for. And then sure enough, something else came up. So it’s like a snowball effect. So, really, if you’re listening to the podcast, I will say please, please, please have a budget: know where your money’s going; take control of your money.

Ashleay:

Absolutely. And one of the things that I find that works really well is having automatic withdrawals that put the money aside in various areas that we need it. So yeah, that can be an easy fix and something that can work very well. And another way to be well prepared for the unexpected is, of course, to be well insured. I know that one personally. We had just finished plenty of work on the house and then whoop: we had a flood and everything was soaked. I’m usually very positive, but this time I was bawling. So how can we be sure that we have insurance that covers our needs?

Kenrick:

Well, the first thing is having insurance is important because it’s just another way to manage risk. So things happen. And you just gave the perfect example. So, there are two types of insurance that I always tell people to look into: The first is health and the second is to protect your property. If I focus on the health piece, there was a podcast or recording that I was part of as part of this November’s Financial Literacy Month, and I met someone named Lynn. Lynn went through some very hard times recently. Her husband had a stroke unexpectedly, he wasn’t conscious, he wasn’t able to communicate with her. She had to figure out what to do. The first thing I learned was that you must have a conversation. But the second is, thank goodness, she had the insurance to help her out in that particular event.

Now, in terms of property. So Lynn, again, I’m going to go back to her example. Her house ended up burning down to the ground. So one night she was at home, you know, she heard some noise, she ran outside with the kids—this is right after her husband had just gone through his illness—and sure enough, she stood outside and watched her house burn to the ground. It’s something that no one ever thinks about. You see it in the news but think it’s something that only happens to others. And then there’s Lynn looking at everything that she owns go to the ground. Thank goodness, again, she had insurance that covered it. So I believe that insurance should be something that everybody looks at.

Sébastien:

Yeah. Of course. And as you mentioned, sometimes there’s only one person in the couple that is responsible for managing all these things and this might the person that gets sick or dies, then after that—I mean, you need to plan for this. You need to have these conversations. You need to write things down.

Kenrick:

Right. So Lynn did go through some hard times that she shared with us. She said they never really sat down and had that conversation in the beginning. So when he had his stroke and wasn’t very conscious, there was a realization, there was panic, there were all these things that she had to figure out now: who’s going to pay the bills, what bills need to be paid and all these things. So I think it’s also important for people to communicate and have those conversations with their partner about the insurances, the bills and all your finances.

Sébastien:

Yeah, it’s not fun, but you need to think about what could go wrong.

Ashleay:

Exactly. And it’s not while you’re going through those hard times that you want to start figuring all that out.

Kenrick:

That’s right. Yeah.

Ashleay:

Sometimes, obviously, paying that monthly insurance premium can be a little bit irritating. Is there any way that we can lower those costs?

Kenrick:

Shop around. So, you know, ask questions. First, I would say, inform yourself, find out what you need with a needs assessment. Then go out and find information on what that looks like. Then you’re ready to go to different companies to find out what services they offer. You know, take the same question to everyone and see what they come back with.

Also think about bundling. So, taking all those services that you have, not only for yourself, but for your partner, to one particular place so you can save money in that way as well.

Ashleay:

And Kenrick, if you were to summarize what we heard today, what would be the top five pieces of advice that you’d give to the people listening to us.

Kenrick:

So for me: One, emergency fund; two, budge; three, have a conversation and talk about life, talk about life in itself; four, communicate; and, finally, get insurance. That’s what I’d say.

Ashleay:

Absolutely. Thank you Sébastien and Kenrick for this very relevant and important—

Sébastien:

Very sound advice here.

Ashleay:

Yes. And for those who might be curious to listen to the discussions that you were referring to and consult the content that was developed for Financial Literacy Month, where could they find it?

Kenrick:

It is at ia.ca/financial-literacy.

Ashleay:

Fantastic. Well, happy Financial Literacy Month to all!

Sébastien et Kenrick:

 Thank you, thank you.

Ashleay:

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