Spoiler Alert: It has nothing to do with age or salary

Published January 20, 2020, by The Canadian Payroll Association

As holiday bills come due, resolutions to “save more” are forgotten and Blue Monday — the most depressing day of the year — arrives, new research from the Canadian Payroll Association and the Western-Laurier Financial Data Analytics Laboratory (The Western-Laurier Lab) reveals that, for working Canadians, financial wellness is a result of more than the size of their paycheque.

Despite what may seem obvious or logical, how much one earns does not necessarily correlate to financial wellness.

The study, published as Learning about Financial Well-Being in Canada, found that 20 per cent of those with a household income of at least $150,000 were still financially stressed. By comparison, roughly 50 per cent of those with household incomes below $50,000 were found to be financially stressed.

Similarly, preconceptions about millennials struggling to make their way in the world and feeling financial stress as a consequence proved to be inaccurate. Fifty per cent of those who are financially stressed are over the age of 40 — 25 per cent of whom have reached the half-century mark.

What leads to financial security?

The research reveals that, more than age or income, it’s actually the ability of working Canadians to deal with brief financial setbacks— like missing a paycheque — and their savings habits that most affect financial stress.

This research shows that Blue Monday is much more than a marketing gimmick. Whether it’s in the spirit of the season or not, when we spend beyond our means, financial stress follows.

The disconnect between income and financial stress was uncovered by the Western-Laurier Lab using 11-years of Canadian Payroll Association National Payroll Week Survey data — totaling more than 35,000 unique responses.

This wealth of data was analyzed using an advanced algorithm-based methodology known as Cluster Analysis, to gain a new understanding of the data by arranging respondents into distinct groups based on their similarity to one another and differences from all other groups.

What the research found is that working Canadians belong to one of three groups: those who are financially stressed, financially coping, or financially comfortable. Approximately one-third of all respondents fall into each cluster.

Those in the financially comfortable cluster are characterized by their shared ability to manage missing a paycheque, their tendency to save money, and prioritization of work-life balance over salary.

Working Canadians who are financially stressed, on the other hand, tend to exhibit a combination of the following characteristics:

• Find it difficult to manage a brief financial setback;

• Save little to none of their income;

• Place greater emphasis on salary;

• Spend as much or more than their net pay;

• Are the most heavily indebted – with the highest likelihood to have car loans, student loans, outstanding balances on their line of credit, and credit card debt; and

• Report that their debt load increased over the previous year.

Working Canadians who are financially coping fall directly between the binary opposed groups described above.

Payroll can help

Employers need to pay attention to these findings because financial stress can have a financial impact on organizations. In fact, it costs the Canadian economy nearly $16 billion in lost productivity each year. Employers can no longer assume that financial wellbeing is tied to salary or any generations’ predispositions. Instead, they need to take action.

Payroll professionals have the strategic knowledge and technical expertise to help. In particular, by leading the development, implementation and management of a Pay Yourself First program for employees to proactively save money every time they are paid.

Pay Yourself First programs, which at present are currently only offered by 55 per cent of employers in Canada, empower payroll to work with staff to arrange for a portion of their pay to be automatically directed into a savings account. As opposed to encouraging employees to transfer funds themselves, automating the process results in better money management, a higher rate of savings, and a steady accumulation of retirement funds.

From coast-to-coast, workers have also expressed the need for more financial education in the workplace. Payroll professionals have the expertise to help bridge this knowledge gap.