6 Things Alberta’s Recession Taught Me About Money

27 Comments

In the summer I wrote about Surviving an Economic Downturn. I talked about the waning morale and falling house prices in the Calgary’s eroding economy. At the time, I apologized for the doom & gloom. Now I wish things were as good as they were then.

Until late 2013, Calgary was Canada’s economic powerhouse. High-paying work was everywhere, and very easy to get. The city was defined by high wages and exorbitant wealth. So high the top-fifth of Calgarian households earned more than $363,000 per year — a figure that would propel you to the upper 1% or 0.1% virtually anywhere else. The bottom quintile still has a net worth of six-figures. Everyone had money, and everyone liked to spend it.

Oil started to fall in late 2014. The first wave of lay-offs happened in March 2015, and now as many as 25,000 Albertans are without jobs. With the layoffs came empty offices, and Calgary’s downtown core now boasts a depressing 17.7% office vacancy rate. The rental vacancy rate has also quadrupled to 5.3% and thousands are putting their homes up for sale only to find house prices have fallen more than 6%. Restaurants are empty. You can find parking anywhere, any time of day. The evening news has segments that focus on how to tell your children Santa won’t be visiting this year.

Consumer proposal and bankruptcy filings have increased by 28% in the province. The suicide rate eerily matches that number, climbing 30% this year. These statistics are dark, and turn what on the surface might seem like a minor economic inconvenience into a real tale of struggle. Many think Alberta’s bust is the price you have to pay for the boom. We have to suffer the bad because things are usually so, so good. I don’t necessarily believe that narrative, but I think it helps make sense of what is happening now.

This has changed how I look at income, savings, and debt forever.

I’m exhausted by the depression settling on the city I call home. I didn’t think it would last this long, but with every month that passes there seems to be no end in sight. It has now gone on long enough to permanently alter my perceptions of real financial security, and how to get it. Some of my original views and opinions have been solidified, others have been entirely transformed. Below are the 6 ways my financial perspectives have changed in the wake of this economic crisis:

1. A line of credit is not a substitute for an emergency fund.

There’s a divided camp amongst personal finance nerds: one side will insist on keeping a cash emergency fund representing 3-6 months of expenses, the other would never keep five-figures earning <1% interest when they have a line of credit to see them through hard times. I have always been of the mind that cash trumps credit, but that belief has become set in stone over the past few months. Humans are notoriously bad at predicting how they will feel in a situation, which is probably why the LOC-for-emergencies idea is so popular. In reality, the stress of being without income is swiftly compounded by that of watching your debt tick higher each month as you use your line of credit to pay your bills and buy food.

If you are upset that your savings account is return little interest, remember the difference between 1% and 2% on $1,000 is only $10. If your savings account is returning only 1%, don’t go to Subway one day and then add the money you’ve saved to your emergency fund. Congratulations, you now have the same amount of money as you would if your account returned 2%. GICs also work.

2. Everything can go wrong at once.

Being laid off without an income is one thing, but watching your stock portfolio and the housing market topple down after you is quite another. Many who were expecting things like their company stock options or the sale of their primary residence to bolster their retirement portfolio have gambled and lost. For those in their 50’s and 60’s, there is no time for recovery. Their retirement will be different than expected. Oh, and the Canadian dollar has also eroded to $0.71 USD during the same time, so hope you weren’t planning to spend weeks in sunny Florida anytime soon.

On the other hand, students fresh out of university can’t get a foothold in their careers. After spending 4 years pursuing a degree that was meant to “guarantee” a great job at graduation, they are now scrambling to find any work at all. Their student loans will begin accumulating interest as soon as they walk the convocation stage, and the debt balance will quietly swell in the months that they try to secure employment with zero years of experience. Borrowing $20,000 or $40,000 probably felt like nothing when the average starting salary was north of $50,000, but now that that graduate income might be $0, your debt load is a crushing burden.

I feel like personal finance always approaches possible negative events as isolated incidences, like “what would you do if you lost your job?” and “what if your investments go down in value?” when reality is this:

“You are fired. You are tens of thousands of dollars in debt. Your stock portfolio is tanking, and so is the dollar. PS. your house is worth $100,000 less than when you bought it. What now?”

I never thought everything could go to hell at once, now I understand that this is what you really have to prepare for.

3. Your biggest liability is a monthly payment.

Everyone knows all debt is bad, but few are in a hurry to pay it off. Most of us accept mortgages, car payments, and student loans as a normal part of life. We think it’s ok to use a line of credit to fund a vacation, or cover our credit card when we’ve overspent. We are comfortable with perpetual debt, because we believe in perpetual income.

But your income stream is not infinite, nor is it permanent. And when it disappears, your expenses don’t. The best thing you can possibly do for yourself is get out of debt as fast as you can, and stay there, because the less monthly payments you have, the more likely you are to survive the unexpected. It is easy to skip dining out for a month, it is impossible to skip a car payment. The more you owe, the more likely you are to lose everything in an economic crisis.

4. You can be without a job for a very, very long time.

The first major layoffs in Calgary happened in early 2015. Now, almost 12 months later, many of those people are still without jobs. Except now they will also be without Employment Insurance, and without any savings, assuming they had any in the first place.

In other words, you can run out of money. You can run out even though it seems impossible that you will ever be unemployed for 12 months straight or that tens of thousands of dollars of savings can dwindle to zero. You can lose everything, even if it took years and years to build. It can be gone in a matter of months, with no hope of recovering any time soon. Real hardship isn’t a few rough weeks or months, it’s being beaten down to a point you might never fully recover from.

5. You might never go back to what you were earning before.

I think we take for granted the steady progression of salaries in the workforce. In our minds we will, of course, be earning more in our 30’s and 40’s and 50’s. This belief that our paycheques will always increase in tandem with our years of labour is what’s really fuelling Canada’s love affair with debt. We are so optimistic that the money will come later, and sometimes we are so wrong.

Calgarians knocked out of their six-figure jobs might never realize that earning potential again. Others who’s pay was topped up with stock options and bonuses won’t be able to cobble together the same compensation packages, even if they are able to secure the same base salary again. For many, that was it. That was their heyday and it’s all downhill from here.

Now I understand that at any moment in your life you could be at your peak earnings. It could be right now. How would you treat your next paycheque if you knew you could never earn this much again?

6. I know nothing but abundance.

A year ago, I considered my income on the lower end of average. While I was proud of paying off my student loans and saving a lot for retirement, I still felt like I was behind when comparing myself to Calgary’s high-earning elite. I don’t anymore.

It seems crazy to me that I ever operated from any other perspective than that I am in a position of abundance, with more than I need to be comfortable or happy — and more than enough to give away. I have the luxury of earning enough to make ends meet and get ahead, and that is incredible. In the wake of an economic crisis where many people a struggling to keep a roof over their heads and food on the table, I have the privilege of not having to live on the edge. Some of this is my own hard work, but so much of it is just sheer dumb luck that I cannot help but be grateful for it every day.

This has inspired me to increase my charitable giving further in 2016, which I will talk about more in an upcoming post. In the meantime, like the rest of Alberta, I will keep waiting for the downturn to end.


27 Comments

  1. Heather

    Your post is spot-on. I was laid off in December 2014 and didn’t find new employment until July. Now I commute way farther for 25% less hourly pay, though I do get more hours to compensate and some benefits. It still sucks, particularly since I LOVED my old job. Owe money everywhere now and going to have to get a second job after New Years cause I’m struggling to pay it off on what I make.
    If you are in a similar situation, don’t lose hope. There are tons of ways to make side money while job hunting. I was discouraged because it didn’t pay my bills, but now I wish that I had been more motivated because it would have at least lowered my principle debt and the amount of interest I have to pay while servicing it.

  2. I think my favorite point here is #2 — that the reality is, you’re planning for literally everything to go wrong at the same time. (If you were in the U.S. you’d have to add “and you just developed a serious medical problem from all the stress, and now you don’t have good insurance anymore.”) Not being in a boomtown or a boom industry, I don’t *think* that scenario will happen to me…but I should re-evaluate my finances and goals with that in mind.

  3. I remember those feelings of desperation from 2008-2009. My house crashed in value by 80%, I wrecked my car, had a break-in, and lost my job, all in about a year and a half period. You question your self worth, question every decision you ever made to get yourself into such a predicament, and question if you will ever see the light of day again.
    But it does get better. Time passes, you learn a new skill, you move away… any or all of those things can give you the fresh perspective and fresh opportunity to move forward.

  4. Lots of feelings here as I debate quitting my job to go back to grad school, while I have a mortgage. Thankfully I can recast the mortgage and that would drop my housing expenses to about $1300/month for my two bedroom condo, but that isn’t a figure that I can do away with. That’s the minimum. I don’t have any other debt though. It will also change my relationship dynamic and possibly alter my earning possibilities going forward and my ability to save for retirement. It’s really hard to consider giving up a solid income to do something more interesting. Financial security is so valuable too. I feel so lucky at the same time I can make this choice with only a small mortgage, but it’s still super scary.

  5. Giovina

    This article made me realize how unprepared I am for a major setback like this. Luckily my job is a lot less cyclical than the oil industry, but it isn’t permanent either. My savings would only last about a month and even though I don’t have any debt now I would probably have to borrow if I couldn’t find a new job quickly. This is good motivation to save more and develop more income streams to become less vulnerable to economic shocks. It also reaffirms my decision to stay out of the oil industry, since it is so unstable and probably unsustainable in the long run. I have a lot of friends in Alberta though, and I hope they make it through this okay.

    • Tim

      The oil industry is not unstable. It has always been… way up… way down… way up…way down. Now you have learned to make the most of the “up” times to stay alive in the “down” times. In 1983, oil was approaching $70 per barrel. In 1985 oil was $7 per barrel. We learned to work for “half” wages until 1990. … This will happen again in a few decades.

      • Tim Casey

        You didn’t mention that the prime interest rate at that time was 18%. You’re getting off easy this time.

    • Agreed.. it woke me up to my vulnerabilities, when I thought I was doing ok!

      I feel more secure now that I’m self-employed, and that I have so many diverse income streams. Watching the whole oil industry tank when my husband works in that field has been stressful though. He’s thankfully has not been in danger of being laid off, but the longer oil stays down the more of a possibility it becomes.

  6. For the last six months, all I can think of is Taras Grescoe’s piece int he Walrus about Fort McMurray. The people he talks to, they know it won’t last. But they don’t care and forge ahead anyway. They are simply comfortable making a lot of money for a short time, instead of stocking it away for the long run. They know their houses will lose value, they know they will lose their jobs. It’s such an eerie read, the entire mindset behind a boom town. http://thewalrus.ca/big-mac/

    Bridget, is Calgary focusing on creating digital hubs or planned office communities to bring in more tech and development? That’s another thing that other places experiencing booms and busts have done to ride the wave. And what are the services for mental health? The suicide rate is so scary. :/

    • This is so bizarre to read now. I can’t believe how different it was only 2 years ago.

      They are trying different things.. Calgary has a powerful start-up community but it’s still in its infancy. Sadly, mental health resources were not predicting or prepared for the jump in suicides and depression, they will need to scramble to keep up because it’s going to get worse.

  7. Yup – as someone who was laid off nearly 2 years ago, I am only NOW starting another full time job, I can attests that so much of this is true, and happened to me.

    It never once crossed my mind that it would take years to find another full time job. Or that it’d only pay about 1/3 of the pay I had made before. Or that I’d have to go back to working for minimum wage just to survive. Or that my savings would only last a few months.

    I can’t imagine what it’s like for a whole major city to go through this at the same time.

  8. Olivia

    It’s crazy because I also live in Calgary with my family and I know all too well about all of this. I went to the mall yesterday to do a bit of last minute Christmas shopping and for the first time in my life, the mall was pretty much empty – 2 days before Christmas!! I was looking for a job on kijiji and for every ad posted there was 5000 or more views (a couple years back it was about 75 views per ad). It’s very very sad how there’s a serious lack of money here now.

    We are doing semi-okay, my husband was one of the few who kept his job and is still earning well but with everything else tumbling around us (portfolio, our real estate etc), it really does feel like a giant stack of cards just waiting to fall. And I feel it’s only going to get worse the longer oil is down (which doesn’t seem to be recovering anytime soon). Weekly I hear of new companies laying people off, and shutting down which just means more people on employment insurance but once that runs out, I really don’t know what many people plan to do.

    • I totally agree. I think the worst is yet to come — beginning in March 2016 many of the people who have been laid off will run out of EI. The real estate market is expected to fall 4% next year, but I bet it will be more. Most predictions say Calgary’s downtown core will have a vacancy rate of 25%.

      It’s going to be a ghost town. It feels so weird to come to this after 2013.

  9. MJ

    Coming from another country few years ago with no $$ in pocket (bought tickets with borrowed money), i work with avg salary (single earner) and today feel comfortable where we are.
    we dont go restaurants or brand name shopping’s or 4WD or leather interiors etc. For some people this feels like living no-life at all but honestly its natural to us. It was same when we were not in Canada.
    It astounds me how much people spend here on food and cloth. we cook at home, eat at home and never feel like we missed something.
    I had a renter who was earning 130+ and he was renting because he could not save enough for down-payment!
    When you go around world and see how tough life is some of spending and waste (specially food waste) specially here in North america is unbelievable.
    Hopefully we will learn something and lets hope some positives do come out of this downturn!

  10. Florence Renfrew

    Bridget! this is an amazing article!
    I live in Edmonton and had no idea it was quite this bad in Calgary, I was fortunate to get a full time job this summer in my field but now see classmates and friends who aren’t able to get an interview. I recommend this blog to all my friends but this really drove the point home for me: we grew up in a fantasy, during an oil boom where nothing like unemployment and being unable to find a living wage to support a family really existed. Financial security is so super important now but unfortunately many of my peers weren’t raised with these skills because growing up their families didn’t ever have to worry about employment or not being able to make debt payments.

    Thank you for writing this!
    Florence

    • STEVE

      What would you do if you had 100,000 in an emergency fund but 87,000 in student loan debt? You say that having an emergency fund is critical but so is getting rid of the monthly payment. Would you pay off the 87,000 student loan payment that would leave you only 13,000 in an emergency fund?

      That’s what I cannot decide right now. ..it’s tearing me up inside. I would only be able to save 1,000 a month to build it back up.

      • How much do you need to live on month-to-month?

        I know for myself I only need about $2,000/mo to pay on my bills (and save10%), so something like $50,000 would last more than two years. If I had $100K of cash and $87K of debt, I’d probably put $50,000 on the debt and keep the other $50,000 as emergency savings. I’d then begin paying down the remaining $37K of debt at $1,000/mo which would get you out of debt in ~3 years (a far better plan than spending 8 or 9 years in debt)

        This also lowers your overall risk. $87,000 of debt probably costs ~$870/mo in payments, which is affordable with a good job, but a $37,000 debt will take you down to ~$370/mo which is much more manageable if you were laid off and had to take a lower-paying job.

        It’s all about balance and minimizing risk!

        • Steve

          Thank you for your reply. My expenses are $3200 a month with student loan payment. If I didn’t have a SL payment, my expenses would be $2700 a month.

          • At $3,200/mo expenses, keeping an emergency fund of $40,000 would be just over a year’s worth of savings! Depending on your job security and what you want to do next, this might be the right amount.

            Remember, you can always use some of your savings to pay down your debt and see how it feels before you save more. Say you take $20,000 from your savings and use it to pay off debt, and then 3 months from now you take another $20,000, and then 3 months after that you transfer another $20,000. This might be easier than doing a large amount all at once, because you can change your mind and stop halfway if you feel like it’s depleting your savings too fast, as opposed to paying off $60K in one fell swoop and not being able to change plans.

  11. It’s always good to have extra cash around. I am the type to keep a larger emergency fund (savings account). $50K in liquid funds is ideal. I’m currently building my cash funds to the $50K level while investing and paying off mortgage.

  12. ChillyWilly

    Knowing people in YYC who have been laid off, I truly don’t wish this situation upon anyone, and it forces us all to reflect as you mention.

    But – there is a considerable silver lining to this downturn, at least for some. For the “renters by choice” crowd, the housing market correction will provide a good opportunity to purchase real estate at better prices (although timing the “bottom” is an issue onto itself).

    For Calgary as a whole, it will provide further impetus to diversify the economy away from O&G, and lower office rents should facilitate that. Cheaper labour might allow the government to do some Keynesian stimulus spending and upgrade Calgary in some sorely needed areas (Green Line LRT?), on more affordable terms than when O&G is soaring and keeping salaries high in the construction sector etc.

    All of this to say – while I appreciate the major problems this city and its people are facing, I don’t “feel” this depression as some others do. It makes me paranoid I am just not well enough in touch. But on the other hand – maybe trying to stay clear minded and not paranoid/depressed/worried about the downcycle is equally a good idea, as it is to ensure one does not get irrationally exuberant in positive economic cycles.

  13. Caron

    Hi, Bridget.

    I found your article by a Facebook post and I have to say I couldn’t agree more with your points, especially that a line of credit is NOT an emergency fund. It is a DEBT and when your ship is sinking, adding ballast is just going to sink you faster.

    I’m old enough to remember the 1980-2 recession here in Calgary and it was ugly as well. I hope this won’t be as bad, but at this point, I think the wisest thing to do is prepare for the worse and hope for the best. One thing I would suggest to everyone out there is invest in yourself – take a class, learn a skill, do it yourself – anything that can provide a side hustle, make you more marketable or save money at home. It pays off and keep you from feeling helpless.

    • Amen, Caron! Investing in yourself is always a great way to ride out a downturn, and make yourself more employable for when things turn around!

  14. Ali

    I think this downturn was a Black Swan that unfortunately many people ignored for years even after the previous market crash.
    As you mentioned, people tend to overlook its probability despite its devastating consequences.

  15. I am in the US, in my 40s and I have been shocked my #5. Who knew that would be my current reality. I absolutely made more and easier in my 20s and 30s. It has been a very strange experience. Especially with even more experience and education now. I am in the Seattle area and absolutely our job economy has changed.

  16. John McCoy

    I couldn’t agree more with the points mentioned in this article. However, we still have no one else to blame but ourselves – during the boom times, the debt rate in this province was off the charts, Almost 3:1 debt to income ratio on average, People were spending money on things that drive very little to no value whatsoever. It is human tendency to think that when the good times roll around, it will continue on forever, that is just not the case.

    I also blame this province as a whole. How many recessions have we been through? 80s, 90s, early 2000s, late 2000s, and now. We’re still not diversifying, not innovating, and I bet when (if) oil goes back up to $100 and crashes again in 2030 and beyond….this province will be faced with the same problems.

    It’s also amazing how attached people are to their jobs/careers. Bottom line, you’re working to make someone else rich. When the recession hits, it’s not the executives who will be applying for EI, they’ll still get their bonuses while you struggle to make daily expenses. It’s time for us to be entrepreneurial and innovate. our way out of this corporate cycle. It’s time for us to think “those were the good times”. Stop living in a fairytale. $100 oil only happened because there was a major conflict in the middle east. With the stabilization of those conflicts, and the lifting of Iranian sanctions, it is possible we may never see $100/barrel oil for the next decades unless a war breaks out.

    Wake up! It’s time to be self-sufficient. If you google it, there are many ways, and it’s not that hard.