Supported by Coast Capital, in this project we sought to exam how household income contributes to financial resiliency and how the characteristics of income (amounts, interruptions, sustainability etc.) impact household behaviours with respect to savings patterns, the accumulation of debt and overall financial wellness. We defined financial resiliency as the ability to recover (return to previous cash flow patterns) after unexpected shortfalls in cash flows – due to either income deficiencies or unexpected expenses.
Over the last 10 years, household incomes in Canada have, ‘on average’, been growing. But the use of averages can mask important stories that get lost in the aggregation. And the pandemic served as a ‘natural laboratory’ to investigate some of those stories. In this project, we found that:
For families below the $150,000 disposable income threshold, financial resilience was not driven by incomes … other than the fact that income frames savings and spending decisions. Until incomes move beyond this tipping point, the role income plays in terms of stabilizing financial resiliency is hard to discern.
There was evidence of financial stress across a very broad spectrum of incomes. After the $150,000 threshold, there is still evidence of financial stress but its likelihood begins to diminish.
From an interview: “I would say the vast majority of people are not making enough money to be able to have comfortable lives. But that does come down to their financial knowledge and ability to budget and things like that. Because people that make a lot of money who don’t know how to do those things end up in these situations as well.”
Savings played a role in financial resilience, but savings rates appear to be an artifact of household decisions around spending and housing. Savings were bimodal with some Canadians exhibiting strong savings habits while others saved closer to $0.
Financial resilience in Canada is a housing issue. For many Canadians, in the context of financial resilience, their current income to shelter ratio is simply not sustainable.
British Columbia is noteworthy because:
it has a significant population-at-risk in the low- and middle-income bands,
has a significant population at risk due to below average savings, and
has a significant population at risk due to high mortgage balances compared to income. However, a significant caveat to these conclusions would be that, at this point, we cannot conclude whether …
A. Incomes are too low,
B. Real estate values too high,
C. Mortgage burdens too high,
D. Households are making risky decisions vis-a-vis needs versus wants, or
E. All of the above?
To request a full copy of the report, please send an email to fwl@uwo.ca
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