How do Canadians perceive the state of their finances?

Latest quarterly Financial Wellbeing Survey reveals continuing stresses for lower-income workers, women, and young Canadians

How do Canadians perceive the state of their finances?

As the country comes together to observe Canadian Mental Health Week, Lifeworks is reaffirming the long-established connection between financial and mental wellness with the latest edition of its Financial Wellbeing Index.

In its most recent quarterly survey, which draws on Canadian workers’ responses collected during Winter 2022, Lifeworks found that Canadians are continuing to languish below their pre-pandemic benchmark of financial wellbeing.

The headline findings of the study paint a grey picture of the future for employees’ retirement-readiness. Two thirds of Canadians do not know or are not sure how much retirement savings they’ll need to maintained their desired standard of living, and one third (34%) don’t know what percentage of their pre-retirement income they’ll need to live comfortably in retirement. 

“To be frank, Canadians’ retirement preparedness could have used some improvement even prior to the pandemic,” says Idan Shlesinger, President, Retirement and Financial Solutions and Executive Vice President, LifeWorks.

“Canadians have traditionally been dependent on their employers for their retirement planning. This approach worked well in the days of single-employer careers but was already under strain as having several or many employers throughout your career became more common,” Shlesinger says. “Consequently, those employees whose jobs were impacted by the pandemic were set even further back from a retirement perspective.”

Among four measures that make up the index, the financial perception sub-scale measures an individual’s perception of their financial situation compared to a pre-pandemic benchmark, stress due to finances, and a comparison to peers who earn the same income.

For Winter 2022, the financial perception sub-score is -2.4 points, which comes after a gradual yet clear decline from Spring 2021.

Perhaps not surprisingly, financial perception scores have tended to deteriorate among younger age groups. The latest snapshot from the study showed a 25-point difference between the score of those between 20 and 29 years of age (-12.9) and those between 70 and 79 years old (12.5) Also predictably, households reporting an income of $30,000 and below exhibited the lowest financial perception score (-14.5) compared to those with an annual income of $150,000 or more (8.8).

“Financial wellbeing does increase with age and income, often because we tend to gain knowledge, experience and assets over time. But getting older and earning more are not enough,” Shlesinger says. “The presence or absence of emergency savings, for example, is a stronger factor than age or income. Savings and experience support the perception of being able to cope with ups and downs, which is key to how you perceive your financial situation.”

Looking at the trend of financial perception based on employer size revealed a less straightforward pattern. The highest financial perception score emerged among respondents at firms with 1,001-5,000 employees (1.7); the only other group to show a positive score on that measure were self-employed individuals or sole proprietors.

Among the other segments, the worst financial perception scores were among employees from firms with 501-1,000 employees (-7.5), followed by those with 51-100 employees (-6.3) and those with 2-50 employees (-4.1).

“The data from LifeWorks Financial Wellbeing Index has consistently shown that employees who work for organizations between 51 and 100 employees have the lowest financial wellbeing scores,” Shlesinger says. “This size of employer is too large to have the personal support that is sometimes seen in startup-sized organizations, but they often do not have the robust pension and wellbeing services and programs that larger employers may have. The difference in scores between employer sizes clearly shows that the employer does make a difference.”

The gender divide was also apparent in Canadians’ financial perceptions. While men had a score of 0.1, female respondents scored -5.0, reflecting the general tendency for women to be less financially confident.

“Our data shows that women report less financial knowledge, are less likely to say that are taking action to improve their financial wellbeing and see themselves as more financially vulnerable,” says Paula Allen, Global Leader and Senior Vice President, Research and Total Wellbeing. “This is partly due to lower average income, but also a historical tendency in some couple and family households for women to manage more of the immediate bill payment and less of the longer-term strategy.”

With inflation at record highs, the rising cost of living, and debt costs set to increase over the next few years, many Canadian households are faced with a growing laundry list of financial stressors. Given that, along with the pandemic’s lingering impact on people’s mental health, the connection between financial wellness and mental wellness has become as clear as ever.

“The LifeWorks Mental Health Index and our Financial Wellbeing Index show a strong correlation between financial and mental wellbeing,” Allen says. “Having emergency savings in particular has separated those whose mental health was more resilient during the pandemic, regardless of the level of income. Financial wellbeing issues introduce a significant sense of vulnerability, which is a major life stressor.

“The good news is that this vulnerability can be addressed with more basic financial knowledge and with processes that are easier to take like default short term savings,” she continues. “Employers can help with both.”