Two Financial Solitudes

A recent annual survey of employees by the Canadian Payroll Association (CPA) shows more people are overwhelmed by their debt, are saving less and would face real hardship if their paycheque was delayed by a single week.

Most of the survey’s measures of financial health have deteriorated this year, with more employed people planning on delaying retirement amid eroded savings.

This CPA survey is not the only recent indicator to suggest households are getting squeezed.   A separate Bank of Montreal poll released last month found a growing number of Canadians have only enough savings to cover one month or less in case of an emergency.

Subdued real wage growth and muted hiring have kept a lid on earnings. Meanwhile, house prices continue to climb and inflation has ticked above the 2-per-cent mark for four months in a row. And while consumers have kept spending this year, they appear to be running up debts to do so.

Of the 3.211 employees surveyed by the CPA:

  • 51% said it would be tough to make ends meet if their paycheque was delayed one week
  • Over 25% of respondents said they probably couldn’t pull together $2,000 in the next month if something urgent arose.
  • 44% said they are spending all or more of their net pay on their children, home renovations and rising energy costs.
  • 39% said they feel overwhelmed by their level of debt
    • 12% of respondents said they don’t think they will ever be debt free.
    • 79% of respondents expected to delay retirement until age 60 or older
    • When asked what the first step would be to improve their financial situation, the most common answer was to earn more. Spending less was the next most-frequent response.

The Bank of Canada, in its most recent monetary policy report, said risks around household imbalances are still “elevated.” Its financial system review showed the chief risks are in the housing market – with the threat of a sharp correction in house prices.

Once considering the above it appears that the risks alluded to by the Bank of Canada is more directed toward Canadian financial institutions while Joe & Mary Six Pack’s biggest risk is on their ability to continue putting food on the table.  Two “financial” Solitudes.