New research shows that when it comes to financial wellness there are blue skies overhead, but
the possibility of storms in the forecast, with Canadians lacking discipline in managing debt and
planning to increase spending as the economy reopens
TORONTO, Sept. 29, 2021 /CNW/ - Despite the economic challenges that COVID-19 brought about, for millions of working Canadians who have remained on payroll since March 2020, the pandemic seems to have been a financial windfall — but these gains may be at risk.
Those who have worked from home have been spared considerable costs. Commuting, childcare and many forms of discretionary spending – like going to the movies, attending sporting events, or eating in a restaurant – all but disappeared. As a result, many are better off financially than they were before. In fact, according to the 2021 Canadian Payroll Association Annual Survey of Working Canadiansi, 53 per cent have been able to put away more than a year ago and fewer (36%) are living paycheque-to-paycheque than at any time in the past 13 years.
Now, as offices prepare to re-open and the rules that have spared us many discretionary expenses start to relax, the question is whether the gains made during the pandemic will give way to a 'new normal' that includes a return to overspending and the overuse of credit.
"When it comes to financial wellness, this moment between the 'COVID reality' and 'new normal,' is a critical tipping point for Canadians," says Peter Tzanetakis, President of the Canadian Payroll Association. "If some of the behaviours forced upon us during lockdown are not transformed into habits – and our survey shows for many, they will not be – working Canadians may once again be faced with the stresses of mounting debt and living paycheque-to-paycheque."
THE SUNNY PRESENT — THE IMPROVED FINANCIAL POSITION OF MANY
One of the contributing factors to the apparently improved financial position of working Canadians is a marked decrease in spending. Seventy-one per cent of working Canadians indicated they now spend less than their net pay in a typical pay period, an all-time high and an increase of 11 per cent since 2019.
This decrease in spending has enabled working Canadians to save more and increase their financial resilience. More than 40 per cent shared that they put more than ten per cent towards savings — up from 34 per cent in 2019. Similarly, 79 per cent now indicate that they are able to come up with $2,000 in the event of an emergency, and 48 per cent say that an unexpected expense of up to $20,000 would be manageable.
While these are encouraging signs, it's important to note that the pandemic played a role in allowing Canadians to increase savings. When asked how they were able to save more this year, 51 per cent of working Canadians claimed lower work-related expenses played a role, and 72 per cent identified spending less on discretionary expenses as a key contributor.
DARK CLOUDS — INCREASED SPENDING AND THE LOOMING DEBT CEILING
Despite the rosy picture at present, there are significant causes for concern just over the horizon — particularly the eagerness of Canadian workers to significantly increase spending on discretionary items and their ability to manage debt.
With regards to spending as the economy reopens, the survey results are clear. Sixty-eight per cent said that they plan to increase their travel expenses to pre-pandemic levels, and a further 57 per cent plan to begin spending at pre-pandemic levels on social activities. Additionally, 37 per cent agree it is unlikely they will be able to continue their savings habits post-COVID.
"The economic recovery relies on increased spending, so spending isn't a bad thing," explains Tzanetakis. "The risk, as it relates to the financial wellness of working Canadians, is in individuals spending beyond their means. If spending means abandoning saving entirely or racking up long-term and/or high-interest debt, gains made could quickly be reversed."
Many working Canadians admit that they continue to struggle with debt. For example, one in ten with credit card debt say that they will need more than five years to pay it off – a further 35 per cent believe it will take between one and five years. This struggle to pay down debt has a direct impact on their ability to improve their financial position through saving. At present, 43 per cent admit that making the minimum payment on debt prevents them saving money – the same percentage of respondents revealed that they "feel overwhelmed by debt."
Closely connected to the looming debt ceiling are ominous signs regarding inflation and housing costs. Housing costs (56%) and higher interest on mortgages (55%) are two of the top three issues concerning Canadians when it comes to the economy. With more than one in five admitting that they spend more than 50 per cent of their income on housing, Canadians will need to keep inevitable interest rate hikes in mind going forward.
PREVENTING FINANCIAL STRESS IS A BUSINESS IMPERATIVE
Beyond personal impacts, the Canadian Payroll Association survey reveals that when workers are financially stressed, they are distracted, less productive, and more likely to leave their job. Even as personal finances improved for many in 2020 and 2021, 30 per cent of respondents who indicated that they experience financial stress, said that financial stress decreased their motivation at work, and 16 per cent said it drove them to seek new employment.
The good news is that there are tangible actions that businesses can take to improve and maintain their employees' financial wellness. First and foremost is implementing a 'pay yourself first program' that empowers employees to work with payroll to automatically direct a portion of their salary towards savings.
Additionally, business leaders can support financial wellness by growing employee confidence in their payroll department, processes, and systems. Ensuring that payroll departments are staffed by qualified professionals to ensure payroll is delivered accurately and on time makes it possible for employees to plan effectively and meet their financial obligations.
ABOUT THE CANADIAN PAYROLL ASSOCIATION
Canada's 1.5 million employers rely on payroll practitioners to ensure the timely and accurate annual payment of $1.02 trillion in wages and taxable benefits and $345 billion in statutory remittances while complying with more than 200 federal and provincial regulatory requirements. As the authoritative source of Canadian payroll compliance knowledge, the Association promotes payroll compliance through advocacy and education.
For more information on the Association, visit payroll.ca.
i The 13th Annual Canadian Payroll Association Survey of Working Canadians: An online survey of 5,389 working Canadians (90 per cent of whom are full time employees) was completed between May 27 and June 18, 2021, using Framework Analytics online panel. The survey is consistent with a margin of error of plus or minus 1.4% 19 times out of 20, but as a non-probabilistic methodology was used, a definitive margin of error cannot be expressed.
SOURCE Canadian Payroll Association
For further information: For more information or to schedule an interview with a Canadian Payroll Association representative, please contact: Keera Hart, Kaiser & Partners Inc, 905-580-1257, [email protected]