How Canadians can achieve financial wellness
External factors like housing prices play a role in determining financial wellness, but an individual’s habits also predict what category of wellbeing they fall into.
According to Adam Metzler, an associate professor in the mathematics department at Wilfrid Laurier University, individuals fall into one of three categories of financial wellbeing.
The three categories are “financially stressed, financially coping, and financially comfortable.”
Individuals in the stressed category tend to be less able to adapt to unpredictable financial obstacles.
For those individuals who are financially stressed, explained Metzler, “if your paycheque was delayed by a week you would have a really hard time meeting your obligations” or you might “have a hard time coming up with $2,000 in an emergency.”
Financially comfortable individuals are on the other end of the wellbeing spectrum as they are less likely to be seriously threatened by unpredictable financial stressors. The coping category represents the middle ground between stressed and comfortable.
Canadians are distributed about equally between these three categories.
“What we found over a ten plus year period was about a third of Canadians were in each group, which is pretty surprising especially when you consider the sample we were working with was almost 90 per cent fully employed,” Metzler said.
Metzler noted that factors such as age and household income do not necessarily predict what category an individual will fall into on the financial wellbeing spectrum.
“The more you make the less likely it is that you are stressed, but we still had like 20 per cent of families with household incomes over $150,000, which is about twice the Canadian median, who were financially stressed and couldn’t handle a one-week delay,” Metzler said.
The same statistics apply to Canadians as they age. Being in an older age demographic makes it more likely that you’re financially comfortable, “but it’s not like the baby boomers have it all figured out and millennials don’t.”
This can be encouraging, since “if it’s not demographics, that means it might be stuff that’s under your control.”
Individuals cannot always control how much they earn, and of course how old they are, but they can control things like “spending, savings, and debt,” Metzler said.
“The less debt you have the better, the more you save the better, the less you spend the better. No matter how much you make, to an extent, those are things that are more under your control.”
Metzler explained that there are some concerns that upward trending inflation and interest rates “could probably tip a lot of people down the scale.”
However, even an external factor like interest rates can tie back into an individual’s debt levels.
“If you have a lot of debt, you’re especially exposed to what happens with interest rates,” Metzler said.
In addition to monitoring their spending, saving and debt, Metzler recommended that individuals look for programs that their employers might offer to save more or better.
The evidence, said Metzler, “says that people who save and create an emergency savings account tend to be generally financially better off.”
A good example of a program that can help individuals achieve this is the Canadian Payroll Association’s Pay Yourself First.
The program ensures that after receiving a paycheck “some of the money has been pulled out and put into some sort of savings account.”
Metzler also recommended the Canadian Payroll Association’s free tool called the Financial Fitness Evaluator.
Individuals can go to https://financiallyfit.ca/ and find out which group they fall into in terms of financial wellness.
Taking advantage of programs and tools like these in addition to monitoring individual habits, are key to improving financial wellbeing.