The Sticky Net

I had no idea the requirements for welfare were so draconian.

You don’t have to be sick to visit a doctor, so we don’t believe individuals should be virtually penniless before they qualify for social assistance.

Governments and financial experts have preached for decades about the need to build savings. But, as the welfare rules prove, those very savings come back to hurt low-income people.

A former factory worker may have been able to accumulate a modest amount of savings in an RRSP. Faced with the shock of going to zero income, that person would undoubtedly visit a welfare office. They would be told to come back when they have cashed in their savings and spent the proceeds. This is one of the reasons welfare caseloads do not soar immediately in the onset of economic weakness. But the requirement of destitution also explains in part why the caseloads continue to rise.

Ironically, cashing out the RRSP means the unemployed workers will face a tax bill the following year for which there is no capacity to pay.

Moreover, the individual will have no extra resources to bridge toward a new job which may require relocation and retraining. This individual gets caught up in the social safety web and struggles to get out well after the economy recovers.

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