Groundbreaking research shows greater planning and saving challenges for those with unpredictable earnings
Whether it’s because of unpredictable pay rates or unstable income sources, income instability is a problem faced by one in three adult Canadians. And even if they’re not on the lowest rung of the earnings ladder, that instability affects their financial health in a number of ways.
In a new report titled The Perils of Living Paycheque to Paycheque: The Relationship Between Income Volatility and Financial Insecurity, CPA Canada revealed that Canadians who report volatility in their monthly incomes, whether due to the source or the amount, are more at risk of financial calamity and find it harder to use strategies like budgeting and saving.
Though unpredictable income is a problem most readily associated with gig workers, but that doesn’t mean it doesn’t happen to other people as well. “Income volatility is present across a wide swath of the survey respondents, regardless of gender, family status, region of the country, education level and even income sources,” CPA Canada said.
It found self-reported income volatility was higher among:
- Younger workers;
- Respondents from households with modest incomes;
- Those receiving social assistance benefits from provincial governments;
- Participants who are separated or divorced; and
- Those with only a high school diploma.
“[D]ifferences in the rates of volatility are only statistically significant for those with modest incomes [falling between $30,000 and $50,000],” the report noted.
Crucially, the report found a correlation between income volatility and lower financial knowledge, as determined through a 14-item quiz. Self-reported volatility in monthly income was also predictive of lower financial capability, which was indicated by negative outcomes such as trouble making ends meet, difficulty in planning ahead financially, keeping track of money, choosing financial products and services, and staying informed about personal finances.
The survey also looked into the respondents’ sense of control over their finances. Similar to the findings on financial knowledge and capability, the researchers found that self-reported income volatility was tied to a decreased belief that ability or effort matters in determining financial outcomes. Those with volatile incomes, the research found, had a stronger belief that financial outcomes are determined by fate or chance rather than being in their own hands.
Based on these findings, CPA Canada suggested that aside from low-income earners, those who face unstable income flows should also receive financial assistance. “We need programs and strategies that either help people achieve a more consistent income flow or better enable them to cope with the problems and uncertainties that are associated with income volatility,” said Francis Fong, chief economist at CPA Canada.