For the past few weeks, the top news stories have focused on the Coronavirus (COVID-19). Public health agencies are closely monitoring the spread of the virus and health implications for individuals and communities. Not only are there physical health implications of an epidemic like Coronavirus, an emergency such as this can also impact a family’s financial health and stability. What would happen if individuals couldn’t go to work to earn a paycheck due to the spread of the virus? How would they pay the bills? We have heard the statistic from the Federal Reserve that, “Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money” (Report on the economic well-being of US households in 2017). In addition, many people are concerned about the impact of the situation on their retirement savings.
Often, an individual or family’s reaction to an income loss is slowed by the expectation that the change is temporary or that they can manage, but in the interim, individuals often don’t decrease their expenses to match the reduced income. Studies have found that it takes many families six months to adjust their spending after their income is reduced (Danes, S. & Stumme, P., 2001). Those six months of ignoring the situation can bring financial disaster. As financial professionals, we can help individuals and families take charge of finances immediately, and make positive contributions to their well-being now and in the future.
Consider these strategies and resources when working with individuals and families concerned about the impact on their finances:
- Identify potential changes in income if someone is unable to go to work or if a place of employment closes. See Adjusting to Income Loss resources and video to help set priorities and identify suggestions and resources for getting through tough times.
- Create or update a spending plan to reflect any anticipated changes in income or expenses
- Set spending priorities in the event that income falls
- Involve family members to identify strategies for spending less
- Identify which debts would be the most challenging to stay current if income is reduced. Develop a plan to communicate with creditors if a person is not able to meet obligations.
- Assess emergency fund. It is recommended to have 3-6 months of expenses in an account that is readily accessible. Identify available resources to start or enhance the emergency fund.
- Encourage individuals with reduced income to apply for unemployment benefits from their state. Some states, such as MN, may offer unemployment benefits if the individual has contracted the disease and needs to avoid contact with others or if their school district, daycare, or other child care provider has canceled services and the person has not been able to locate other reasonable accommodations.
- Locate state specific unemployment services on this U.S. Department of Labor website.
- Also, stay up to date on the news regarding federal assistance that may be available to all families. Awareness of what will be available helps to plan ahead as we move forward.
- Have cash on hand in the event that banks, ATMs or credit cards are not available. Approximately $200-$300 in small bills is recommended.
- Review credit report at www.annualcreditreport.com to determine current debt load. Could additional debt be utilized and sustained after an emergency?
- Determine debt to income ratio; monthly debt payments divided by monthly net income = debt to income ratio; 15% or less is ideal
- As needed, utilize online banking and online bill paying options to manage finances.
- Review health insurance to determine current coverage, assess needs, understand how the policy works, and identify needed changes.
- Organize and review important papers so they are easily accessible. (Video available.)
- Complete or review a Health Care Directive to identify who you want to make health care decisions for you if you aren’t able. Share this document with your identified person, family and health care provider. Each state has unique laws regarding health care directives, so investigate your state’s information. For example, Minnesota has a Minnesota Health Care Directive Planning Tool to aid in decision making.
- Seek assistance from an Accredited Financial Counselor
- Discuss steps to Surviving a Volatile Stock Market using this fact sheet or short video.
- Make backup plans for childcare, work, and elderly family members
- Plan for what you’ll do if your children’s school or childcare provider closes.
- If you can work from home, make arrangements now that can be activated later.
- Plan ahead of time so that more than one person is available to check in on elderly or vulnerable family members. This guide from the Red Cross is helpful.
- Search out and utilize community resources to stretch income as needed, including assistance from governmental and nonprofit organizations. Many schools and communities may offer free meals for children when schools are closed.
- Be aware of Coronavirus related scams. The Federal Trade Commission offers tips to keep scammers at bay.
- Create a household plan of action and prepare your home for a potential Coronavirus quarantine by collecting necessary food, general household items, medicines, items for children, etc.
- Take steps to control stress and help children cope with their fears. Identify sources of support and friendship.
We invite you to suggest additional strategies and resources to help individuals take positive action to improve their financial situation and reduce stress.
For more information, contact: