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Caution: A Financial Stress Storm is on the Horizon

Published September 29, 2021 by The Canadian Payroll Association


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 Canadians, 53 per cent have been able to put away more than a year ago and fewer 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 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. If some of the behaviours forced upon us during lockdown are not transformed into habits, working Canadians may once again be faced with the stresses of mounting debt and the realities of 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.

While this is encouraging, it's important to note the major role 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 necessarily a bad thing. The risk, however, comes to when people are spending beyond their means. If spending means abandoning saving entirely or racking up long-term and/or high-interest debt, gains made can quickly be reversed.


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.