About financial fitness evaluator tool

The Financial Fitness Evaluator is a tool designed by the National Payroll Institute based on authoritative research completed by and the Western-Laurier Financial Data Analytics Lab. 

This study entitled “Learning about financial health in Canada” was published in the June 2021 edition of the journal Quantitative Finance and Economics by Adam Metzler, Chuck Grace and Yuhao Zhou.

About the Research

In 2009 the National Payroll Institute began conducting an annual survey of employed Canadians, asking questions on a variety of subjects related to personal finance.

Since that time, more than 35,000 different individuals have completed the survey (some in multiple years). Because of its longevity and consistency, the resulting data offered a unique opportunity to learn about Canadians’ financial circumstances and how, if at all, those circumstances have changed over time.

Canada’s Financial Wellness Lab research team includes scholars from Western University and Wilfrid Laurier University. They applied cluster analysis, a powerful technique in (unsupervised) machine learning, to the eleven years of survey data. The most important findings were that: 

    (i) financial stress has been widespread among working Canadians for more than a decade, and
    (ii) financial stress is not determined by simple demographics such as age, income or geography. Financial stress is not synonymous with low household income, those with high household incomes are not immune from financial stress, and financial stress is not concentrated in a particular age bracket or geographic location.

The findings authenticate a growing body of survey-based research into the financial well-being of the Canadian population. Distinguishing features of the analysis underpinning this tool, are the longevity and consistency of the data source, as well as the statistical methodology employed. Intuitively, the clustering methodology allowed the data to speak for itself as loudly as possible, without any interference from preconceived notions the researchers may have had about important aspects of financial well-being.

The clustering algorithm arranged respondents into groups (called clusters), in such a way as to ensure that members of the same group are as similar as possible (with respect to their survey responses) and members of distinct groups are as different as possible. In effect, the algorithm is designed to identify response patterns that clearly differentiate respondents, regardless of how complex those patterns might be. The optimal number of clusters, as well as the optimal arrangement of respondents into clusters, are determined by the algorithm in a completely objective fashion according to rigorous mathematical criteria.

The algorithm consistently identified three distinct clusters in the responding population. In analyzing response patterns within each cluster, the researchers found that two of the groups - which were labeled “financially comfortable” and “financially stressed” - seem to lie at opposite ends of the financial wellbeing spectrum, whereas the third (financially coping) seems to lie somewhere between the other two. One third of all respondents are classified as stressed, leading to the conclusion that financial stress has been widespread among Canadian workers for many years and that financial stress is considerably more complex than one might imagine.

While the Financial Fitness Evaluator is based in research, it is not meant to replace professional financial advice. The information provided through the Financial Fitness Evaluator is general in nature and all participants accessing the tool should seek qualified financial advice if they are looking to make a change to their personal finances.