What about simply being able to pay your rent when your workplace or business is ordered to shut its doors?
As the world tries frantically to contain a rapidly spreading outbreak of Covid-19, schools, public venues, tourist attractions, and workplaces are being closed in an attempt to keep even more people from contracting the illness. Quarantines and self-isolation protocols are also being instituted across the globe for those who may have been exposed.
Of course, everyone knows that millions of people in China have been in lockdown for more than a month. People are told to stay home, many businesses have ceased to operate, and Chinese New Year celebrations simply didn’t happen this year. China’s debts are all coming due now, at the worst possible time as the financial loss for the country has been astronomical. For example, car sales are down 92% and Lunar New Year celebrations and travel that usually earn a billion dollars were canceled.
And that tourism hit affects far more than just China. In 2017, Chinese outbound tourists spent $258 billion around the world. The airline industry is bracing for a $29 billion dollar hit. All in all, this virus could end up costing the global economy more than 1.1 trillion dollars, a number that is practically unfathomable.
While the numbers cited here are outrageously large, obviously, these losses aren’t only going to affect “the economy” and “the businesses.” They’re going to have devastating effects on normal folks who just want to go to work, pay their bills, and keep living their lives normally.
A great deal has been written about the economic hits on a global scale as well as the shortages we could soon expect as production in China grinds to a halt, but what about simply being able to pay your rent when your workplace or business is ordered to shut its doors?
Something nobody is really talking about is the financial hit that people will be taking during such closures. This is a very real concern, and for families who already live paycheck to paycheck, the loss of income could prove devastating.
How will containment efforts affect average folks financially?
All over the world, cities are frantically attempting to contain the virus.
Yesterday came the news that 10 cities in northern Italy had closed all public venues due to a new cluster of coronavirus patients. The towns, in the Lombardy region, have shuttered restaurants, stores, and schools. Public gatherings like carnival celebrations, church masses, and sporting events have been banned for at least a week. In one town, Casalpusterlengo, an electric sign reads, “Coronavirus: the population is invited to remain indoors as a precaution.” Seventeen people in the region have tested positive for Covid-19, and two have perished there from the illness.
Millions of people in South Korea have been told to stay at home. Preschools have been closed and public gatherings and demonstrations have been banned.
Thousands of people in the United States are under voluntary self-quarantine, not to mention the hundreds who have been repatriated and put into mandatory quarantine. Obviously, unless these folks have jobs to which they can telecommute, they’re not working.
All of these containment measures are certainly wise and in the best interest of peoples’ health. But what about their bank accounts?
Here’s a scenario that’s seeming less and less farfetched.
If you’re the owner of a physical business like a store or restaurant, you’re going to have to shut down under any of the kind of mandates mentioned above. When you’re closed, of course, you’re not making money. It’s the same thing with factories (who will be there to produce the goods?) and offices. Your business will grind to a rapid halt.
And what about employees? Obviously, if you don’t go to work, you’re not going to get paid. And this isn’t just a case of “evil capitalists” who are too stingy to give their employees paid leave. If the business is not running, there is no revenue coming in. That means that even if the business owners were the most generous people alive, they probably couldn’t afford to maintain payrolls for very long.
So how are you going to pay your bills? It’s safe to expect that the mortgage company, the credit card companies, the utility companies, and all those other businesses with their hands out each month are still going to want their money. And their businesses could potentially carry on to some degree, remotely. That stuff isn’t just going to magically disappear. You’re going to owe that money. Even if companies try to work with folks as they did during the most recent government shutdown, the money will still be owed and you’ll still be unpaid for a week, a month, or however long you were out of work.
This doesn’t include the cost of food, medication, general expenses, and medical bills – heaven help you if you do get sick.
What can you do to prepare for this financially?
Here’s where the situation becomes even more difficult.
I strongly, adamantly advise getting prepared for being home for a period of time whether that quarantine is official or self-imposed. I advise also that you get prepared for other ramifications of a potential global pandemic, too. And if you aren’t already pretty well-prepped, that is going to cost money.
That leaves us in a quandary.
Do you save your money for the possibility of being without work or do you spend your money to feed your family while you’re without work? It’s like a choice between the rock or the hard place.
If you have an emergency fund, avoid cracking into it for supplies. This will be your cushion for bills if you go for a period of time without work. If you do not have an emergency fund and you’ve been struggling with a paycheck to paycheck lifestyle, things will be a lot tougher.
Temporarily halt your efforts to pay off debt faster. Pay only the minimum payment for a month or two while we see how this plays out. Put that extra money into your savings account and you can build a small emergency cushion. And if things don’t get bad, you can use it for debt later when things settle down. People always like to say I’m wrong when I suggest that paying off debt isn’t your first priority, but in this situation, keeping your utilities on and a roof over your head is more important than paying some extra interest.
Raise some money. Now’s the time to try and raise a bit of extra money. Do you have anything you can sell for a chunk of change? Is there a possibility of getting a second job temporarily? Put an ad on Craigslist for that exercise bike being used as a clothes-hanger in the basement. Sell a piece of unwanted jewelry. Get rid of the car nobody drives. Use this money for your emergency fund or for supplies. You will have a lot more difficulty selling it after a crisis because then everyone is going to be broke. If you’re going to do it, do it now.
If you’re flat broke, things will be more difficult. This isn’t news to you if you’re in this situation. Please know I’m not judging – I’ve been there, so broke that I literally cried over a gallon of spilled milk because it was a week until payday and I couldn’t afford to get more for my children. But this isn’t about emotional responses – it’s about practicality. If you have only a limited amount of money, you’re going to have to prioritize where you spend it. Your credit is most likely already shot if things are this tight, so don’t worry about that right now. Keep a roof over your head, utilities on, food in the kitchen, and a car in your driveway if your job depends on it. Credit card debt should be the last thing you pay in a situation like this. Go read this article, How to Survive When You Can’t Pay Your Bills, for more detailed information.
Prioritize your supply purchases. While people are frantically buying up N95 masks and PPE, spend your money on the things you need to have on hand during a month or more at home. Sure, I think it’s great to have medical supplies for a possible pandemic, but these measures are to be used if you go out into the germy masses. And your goal should be to avoid doing that. Other reasons you’d need these supplies would be if a family member became ill – you’d want to do your best to avoid contracting the illness yourself while you care for them and you’d want to protect your other family members. The more I learn about this virus though, the less convinced I am that gloves and masks are going to be preventative enough if you’re living in close quarters with an infected person. Look at the rapid rates of transmission aboard the Diamond Princess cruise ship for more information on that. While of course, it is best to have both medical supplies and food, if you can only get one type of supply or the other, focus most of your money on food and other essentials – not PPE.
Use some of the money coming in for supplies you need to buy. Think about what you would need if you couldn’t leave your house for a month, two months, etc. (It’s pretty difficult to put a time on something like this. China has had people in some areas locked down for a month with no real end in sight.) Here’s some of the stuff I bought to top up our supplies and be prepared for lockdown. Use my list only as a general guideline – you know what your family needs and it will be different from mine. Be sure to include plenty of nutrients in your supplies – you want your immune system to remain highly functional when you could be at risk of contracting an illness.
At the same time, go for quantity over quality if money is an issue. Get some stuff that is cheap yet filling as the last resort of your pantry. Remember, you want to be able to stay home and not send someone out to be exposed while trying to acquire food. So if that means some peanut butter and crackers or mac and cheese in the back of your pantry, it’s better than getting sick to go out and seek fresh veggies. (And you most likely wouldn’t even be able to find them – expect the supply chain to break down pretty quickly.)
Talk to the people to whom you owe money. Contact utility companies, mortgage companies, banks, credit card companies, etc., and let them know about your situation. Everyone will be in a similar boat and these businesses may have some suggestions for you. Mortgage companies may be able to offer you a month of grace, credit card companies may make arrangements with you, etc. Do this early on and it will help you plan where your money is going to go during the crisis.
Prioritize your bills. You need a place to live (although I doubt they’re going to be running around evicting people during a pandemic, you could lose your house afterward unless you can work something out.). You need to keep your utilities on. You may have some other essential spending, too – this will be very individual. Credit card debt and unsecured loans come dead-last in bill-paying during a crisis like this. Other things that are not essential? Cable, which seems like a great option for whiling away the hours when you’re cooped up in the house, is not a priority. Nobody in your family will die without television although some people may act like they’re going to perish from the very idea of it. Each family member having an operable cell phone? Not a priority. Extreme situations may call for measures that people find less than pleasant. Make these decisions early on. A monthly cable bill of $120 would buy you quite a bit of non-perishable food.
Be frugal. Let’s assume you’re able to work out a deal with the utility companies to pay your overdue bill a month after the crisis has resolved. These aren’t going to be the only bills you are behind on. It would behoove you to be as frugal as possible with utility usage. Don’t leave on every light in the house, don’t crank your heat or air conditioner, and try to keep your bills low so that the amount you pay when things go back to normal isn’t quite as daunting. Trust me, paying 2-3 electric bills at a time will still be a big chunk of money, regardless of how careful you are. Don’t make it worse by acting like you’re in a hotel where you don’t pay for the power used.
Be ready for the long haul.
This is a crisis that could have snowballing repercussions and they could last for a very long time. Hopefully, it gets contained and blows over without affecting us too badly. Hopefully, we get lucky and in a few years, the Covid-19 outbreak warrants the same eye-roll that the 2014 Ebola scare does.
But if it doesn’t – if the scenario described in this article comes to pass – you need to be prepared for a long-haul. You need to be ready for your lifestyle to change fairly dramatically. A loss of more than a trillion dollars from the global economy isn’t something that we’ll bounce back from with “business as usual.”
- Jobs will be cut as businesses struggle to stay afloat.
- Businesses will fail.
- Properties will not sell.
- Shortages of food and other supplies will occur.
- If people are unable to pay back debt, expect a banking crisis that makes 2008 look like a rainy Sunday afternoon.
The same measures taken to contain the virus can cause these economic effects.
…experts like Richard Schabas, Ontario’s former chief medical officer, worry that draconian measures that stoke fear in the population do more harm than good.
“Recessions kill people, in fact will probably kill more people than this virus does,” he told CBC News host Michael Serapio last week…
…”Our world has become so interconnected,” says Jia Wang, deputy director of the University of Alberta’s China Institute.
Wang suggests that the next few weeks will be critical, showing whether the epidemic, with its global economic impact, is moderating or getting worse…
…Fear and government restrictions mean people in China have been staying home, slashing the business of retailers and restaurants. Some reports say property sales are down by more than 80 per cent, affecting a business that represents about one-quarter of China’s gross domestic product.
Wang says that while the country’s giant companies are big enough to outlast the crisis, especially with government help, a significant and dynamic part of China’s economy is based on much smaller businesses that could disappear, leading to lingering economic effects.
“If the quarantines and shutdowns of many cities around China continue for a few more months or even just one month, many of the smaller companies may not survive,” she said.
Wang says there are also worries that the coronavirus and its economic effect will spread outside China. Last Friday, Singapore’s president, Lee Hsien Loong. warned the disease could push that country into recession.
Putting a figure on the global impact is not easy, and estimates of the damage vary widely. Oxford Economics says global growth will fall to 2.3 percent in 2020, the lowest level in more than 10 years and below the IMF’s global recession level. (source)
Currently, it’s impossible to predict how far this will spread and how bad it will be. There’s no way to know how long quarantine and containment measures will be put into place, or even if they’ll be necessary.
But be ready for anything, economically speaking. Covid-19 is the wild card that nobody expected.