How Big is Your Financial Safety Net?

The healthcare debate going on south of us has me thinking. I’m grateful that I’ll never be denied basic healthcare for a pre-existing condition. I’m thankful that no matter how sick anyone in my family gets, the choice to see a doctor or go to the emergency room, will never be a financial decision.

In Canada we have a fairly wide financial safety net. Even if we have never saved a penny for retirement, once we hit 60 we can collect CPP or wait until 65, get more and add Old Age Security (OAS). If that isn’t enough, there is always the Guaranteed Income Supplement (GIS) for low income seniors. It won’t make you rich by any means but it’s enough for food, clothing and shelter, unless you live in Toronto or Vancouver in which case you might have to move in with a roommate or two.

If you are permanently disabled, there is the disability pension, as long as the person applying paid into the Canada Pension Plan in four out of the last six years. Again, it’s not a lot but it’s enough that a disease or accident shouldn’t leave you bankrupt. If the accident happened at work, there is worker’s compensation. If you get laid off, provided you are eligible, you can collect employment insurance.

For people with kids, Canada has one of the most generous maternity benefits in the world, not to mention the child tax benefit or the universal child care benefit.

In catastrophic conditions, social assistance is available. Each province or territory is responsible for their own social assistance programs. Look under the blue pages in your phone book under social services for the contact information in your province or territory.

Beyond all the government help that is available to people in need, there are thousands of non-profit organizations there to help in a crisis. Some of these include food banks, shelters, churches, mosques, synagogues and charitable groups that focus specifically on the poor in Canada.

Government benefits are just the basics of a financial safety net for worst case scenarios. One of our financial goals in life is to never rely on government assistance. We never refuse our Child Tax Benefit. Instead we use those funds to invest in the kid’s RESPs. We won’t turn away our Old Age Pensions, and after paying into the Canada Pension Plan for so many years, we consider it earned money anyway. Our hope is to never need the guaranteed income supplement or social assistance yet knowing that it’s there just in case, is a great comfort.

To help build an even bigger financial safety net, you might want to consider:

I know beyond a shadow of a doubt that if my house ever burnt to the ground, my spouse died and I lost my job I have friends and family that would gather around me and support me throughout just as I would for any one of them. In many ways it’s the social support system that has the potential to be a person’s largest safety net.

As Canadians, we have a fairly wide financial safety net. Beyond these basics, it’s important we plan for a secure future so when we’re faced with a crisis, we don’t sink financially. I take great security in a wide safety net and hope with every increasing financial security I can be there for others when they hit some of life’s bumps along the road.

How big is your financial safety net?

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

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Kathryn

Kathryn

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.
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cannon_fodder
10 years ago

“I know beyond a shadow of a doubt that if my house ever burnt to the ground, my spouse died and I lost my job I have friends and family that would gather around me and support me throughout…”

I’m not so sure that would be the case for me – my family might avoid me altogether thinking I was cursed if all that occurred at once!

Similar to “bob”, I would use an untapped line of credit as my emergency fund. I don’t like the lost opportunity of having money sit there “just in case”. I’ve been very lucky as I’ve worked over 20 years at several companies and never been out of work once. Also, neither when single or in a relationship did I or my spouse suffer any medical condition which prevented us from being fully employed.

My wife said to me a few years ago that if things got really bad, we could always sell our house. And she LOVES our house. I think that sort of practical view came from being a single mother of 2 children for about 5 years, having to work 2 jobs, and live with family. We would have other avenues to look to should the worst happen – chequing accounts, non-registered account, RRSP’s, TFSAs – heck, even the RESPs.

I never carry a credit card balance while my wife isn’t so diligent but even so, she never lets it get out of hand.

Our situation is quite solid and that is because we conscientiously worked hard at investing: paying down our mortgage with tax refunds, work bonuses and raises; maximizing RRSP, RESP and TFSA contributions; and generally having a reasonable balance between discretionary expenses and income. That and the fact that we earn more than the average Canadian for our ages – consider that “investing” in our human capital by managing our careers.

used tires
11 years ago

“Now, if the Medicare crowd would just unwind their hands from the steering wheel and let everyone in the country have what they have, we would be better off!”

Haha, couldn’t agree more with that!

Till then,

Jean

Jan
11 years ago

Pat- They couldn’t pay more than me- about 35% of my income goes to taxes after local taxes. That doesn’t include other taxes that graze by.
I have been hoping for universal medicine for a long time. Unfortunately, US didn’t get it with the last passage. I don’t know why small business owners aren’t dancing in the street- they get such huge breaks- leaving the middle class family EXACTLY where they were twelve months ago. I live socialized medicine because my husband served for 20 years in the army. I was hoping my children could find an easier path. They are not willing to just “hope” that good eating and exercise will keep them safe. They both have experienced some pretty major injury while playing sports or driving a car….
Thanks for the Canadian perspective.
Now, if the Medicare crowd would just unwind their hands from the steering wheel and let everyone in the country have what they have, we would be better off!

Pat
11 years ago

Who pays for all these services? Does each person have to pay taxes and if so, what percentage?

Sampson
11 years ago

I find this debate about the size of emergency funds interesting.

I’m not exactly sure if my cash in high-interest account officially counts as emergency. Part of it fulfills my cash allocation in my portfolio, part of it is for expected expenses over the near 1-2 years.

I can only guess at the average income and expenses of MDJ readers, but I suspect 3-6 (even 9 months) or emergency funds isn’t a whole lot. Some of the arguments against holding that cash is (i) it is idle, (ii) it incurs tax liability.

Well for (i) we don’t know what other investments someone has, perhaps 100% of their other investments are small-cap oil/gas or metals exploration. Maybe they don’t need to have any more risk therefore cash holdings are appropriate. (ii) the tax liability on interest incurred on even $20k is not very much, and for me anyway, not worth worrying whether its inside my RRSP or not. Say your MTR is 50% and you earn 5% on your $20k – that’s $500, not pocket change, but nothing to sweat over.

Personally, I’d never keep ’emergency’ cash inside an RRSP or even a TFSA because I’ve got loftier expectations for my monies in those types of accounts. I’d never want to burn RRSP cap-room due to an emergency.

Kathryn
11 years ago

Justin: Your comment is where I thought many of the comments would go. It was interesting to watch the discussion go the way of the emergency fund rather than the real cost of a government sponsored financial safety net. Good thoughts.

used tires
11 years ago

Very good points you’ve brought up there, Kathryn. Emergency funds are certainly important. Like Dr Stock, I depend on stocks. If you play the cards right, it can work out.

Till then,

Jean

Rachelle
11 years ago

– The idea of an insurance company, who’s best interests will be served if they don’t pay me, having any say in my care at my most vulnerable is chilling.

Every single industrialized nation has universal health care that is paid for by the state. And guess what it doesn’t cost more. It costs less.

It’s really a travesty. I don’t understand why every single American isn’t protesting in the street.

While you quiver in fear at “socialized” medecine, you drive on socialist roads maintained by socialist workers. If you have a fire, watch out because the socialist fire department is coming to put out the flames. Your army is the arm of socialists too. Their pay comes out of your taxes.

Here in Canada most of us are happy to pay a little more to take care of our fellow man so that he can take care of us when we get sick. We get a great deal in the bargain because we pay half of what you pay and get the better care.

Doctor Stock
11 years ago

Interesting article… I find keeping money invested (or in my investment portfolio) is best for me. The only money I have invested is money that has gained; therefore, if it is a true emergency and I need it immediately, I can sell a stock and take a profit and still cover my needs. The worst feeling is when you’re money is tied up, but down in the dumps.

Roshawn @ Watson Inc
11 years ago

I don’t think there is any problem with having a generous emergency fund, depending on your overall plan. During a disaster, the last think I would want is a line of credit, so having cash on hand is reasonable. Overall, 9 months worth of expenses isn’t really that much (in the big scheme) of things anyway.