How financial planners can help build a more resilient Canada

New research reveals important insights on households’ financial resilience – and how having a plan makes a difference

How financial planners can help build a more resilient Canada

As households across Canada face increasing pressure from external economic stressors, a newly released report suggests more efforts are needed to bolster their resilience – and financial planners could hold the key.

The study from the Financial Resilience Institute, a non-profit organization and leading independent authority on financial resilience and well-being in Canada, leverages analytics from the institute’s proprietary Seymour Financial Resilience Index. It was commissioned by FP Canada and the Institut québécois de planification financière (IQPF).

“It’s vital for people to understand and work towards improving their financial resilience. Seventy-five per cent of Canadians actually report to us that they want to better understand their financial resilience and how they can improve it,” says Eloise Duncan, the institute’s CEO and founder. “At a time of economic volatility with many Canadians facing affordability challenges, Canadians working with professional financial planners have experienced positive outcomes as related to their financial resilience and well-being.”

According to Duncan, the Institute’s Index and data shows 78% of Canadians across income levels are experiencing financial vulnerability on some level, which has a negative impact on their physical and mental health, as well as other facets of their wellbeing. The positive knock-on effects of fostering financial resilience and wellbeing, she adds, ripples further out to their families and communities as they go through life.

Financial vulnerability: not just about income

Leveraging the Financial Resilience Index, the FRI’s latest report took a deep dive into Canadian households’ financial resilience – their ability to get through financial hardship, stressors, and shocks as a result of unplanned life events. The index, the first of its kind in the world, looks at financial resilience through nine behavioural, sentiment, and resilience indicators.

Those indicators, boiled down, score households on a scale from zero to 100, with February 2020 as the index baseline. The institute segmented its analysis of households on a provincial and national basis, as well as other key groupings. Households are divided into four levels of financial resilience, from “Extremely Vulnerable” (scoring 30 or below on the index) to “Financially Resilient” (scoring above 70).

“Financial vulnerability spans all household income demographics. You can be ‘Extremely Vulnerable’ even if you have a household income of over $150,000 as a result of your financial behaviours, social capital and other aspects,” Duncan stresses. “As of February 2023, 21% of those with a household income of $150,000 or more are either ‘Extremely Vulnerable’ or ‘Financially Vulnerable’ to financial stressors and shocks, with only 40% ‘Financially Resilient.’”

The FRI found that across all income segments, people who work with financial planners are more financially resilient than those who don’t. Households working with a financial planner have a mean financial resilience score of 59.6 compared to a mean score of 48.1 for those not working with a financial planner. Among households earning less than $50,000, those that work with planners have an index score of 50.16, compared to 40.46 for those not working with a planner.

Financial planning across the ages

While the FRI has consistently confirmed the important role of financial planners in supporting Canadians’ financial resilience and wellbeing, its latest report released this month revealed generational disparities: one in five millennials in Canada reported working with a financial planner, compared to a quarter of Gen Xers and 30% of Baby Boomers.

Duncan says this study didn’t dig into the reasons why people from different demographic groups work with a financial planner or hesitate to seek professional advice. But research it did with other leading organizations in February revealed numerous reasons why millennials in particular may hesitate to seek out financial advice.

“A key reason why many millennials say they hesitate to seek out financial advice is because they do not want to pay costs or other fees for financial advice. Fifty-four per cent lack confidence in where to start or what questions to ask,” she says. “We also see 38% millennials don't feel that they have sufficient assets to warrant actually seeking out advice from a financial advisor or financial planner.” 

The data also hinted at a tendency toward independence, with some millennials preferring to make their own financial planning, saving, and investing decisions, rather than work with an advisor.

No ‘silver bullet’

Among financially resilient households that have a financial plan, four fifths reported improvements in their financial wellness over the past 12 months, the Financial Resilience Index model revealed. Having a plan didn’t seem to be a “silver bullet” for more financially vulnerable households, however, as only 28% of extremely vulnerable households with a plan saw the same progress.

“Based on the data, we see financial planning as a pathway to financial resilience. But households, particularly those that are more financially vulnerable, may be facing other systemic barriers or challenges,” Duncan acknowledges. “People’s financial resilience can change over time as they build healthy financial behaviours, go through planned and unplanned life events, and navigate financial stressors and decisions.”

While working with a planner and having a plan in place have an impact on financial resilience, it’s also important for households to adhere to the plan as best they can. Among Canadians working with a financial planner who had a financial plan, those adhering to their plan were more financially resilient with a mean index score of 67.3, compared to 53.3 for people not following theirs.

“The two thirds of people who are working with a financial planner, that have created a financial plan, and are adhering to it are doing the very best of all from a financial resilience perspective,” she says. “They also have lower levels of financial stress, which in turn positively impacts their overall wellbeing.”

From the Covid-19 pandemic that hit in 2020 up to the cost-of-living crisis today, Duncan says households across Canada are facing an increasingly volatile world. Against that backdrop, she says building financial resilience is of paramount importance not just to everyday Canadians, but also to policymakers, financial institutions, and other stakeholders.

“There’s a real need for Canadians including undeserved and more financially vulnerable populations, to receive targeted support and help them build their financial and overall resilience in their lives,” she says. “I believe financial planners have an important role to play in terms of helping people, knowing they are ultimately in charge, and working to maintain or improve your financial resilience is a journey through life.”