Nearly forty per cent (37%) of adult Canadians report having experienced moderate to high income volatility over the past year, according to a survey commissioned by TD Bank Group. The result suggests around 10 million Canadians experience the problem, which for some 3.3 million people equates to income fluctuations of 25% or more.
Income volatility is characterized by inconsistency (irregular or unpredictable timing in receiving pay), instability (variations in how much one is paid), and significant fluctuations month-to-month on a percentage basis.
The report, titled Pervasive and Profound: Impact of Income Volatility on Canadians
, found that income volatility is most likely to happen to:
- The self-employed;
- Millennials (particularly 18- to 24-year-olds and women);
- Mature Gen-X men (45-54 years old);
- Low-income cut-off (LICO) Canadians and lower-income Canadians (non-LICO with annual household income below $40,000); and
- Those living in Alberta as well as the largest cities (populations of 1 million and up)
Respondents identified irregular hourly pay (28%), multiple sources of variable income (19%), and self-employment (18%) as the top three causes of month-to-month income fluctuations.
Volatility had a negative impact financial health, as reflected by four indicators: saving, spending, borrowing, and financial planning. The effects were most severe for savings, with 44% of Canadians experiencing high-level income volatility showing low financial health, compared to 28% for those with low-level income volatility. Financial planning was also hard-hit, as 34% of high-income-volatility Canadians manifested low financial health — almost twice the percentage for those with low-income volatility (18%).
Income volatility also causes delays in routine expenses, such as groceries, credit card payments, and bills. Those experiencing high income volatility were also twice as likely to “often” get stressed over personal finances compared to those with more less volatile income. Lower-income Canadians, who are at higher risk for income volatility, are more likely to suffer its negative and more acute impacts.
“This confirms what many community organizations have suspected for some time — that there has been a sea change in the financial lives of Canadian households,” said Bharat Masrani, CEO and president of TD Bank Group. “We need to broaden our focus to address not just income poverty and inequality, but income volatility as well if Canadians are to truly prosper.”
For more of Wealth Professional's latest industry news, click here.
Survey: reality bites for graduates with challenging financial goals
What do Alberta’s retail investors really want?