Payroll solution to high debt? 66 per cent of employees in a better position than a year ago; but 94% carry debt: Survey

Nationally, the majority of employees report being in a better position this year, versus a year ago — according to a new survey from the Canadian Payroll Association. Although slightly less than half report living “pay cheque to pay cheque” — largely due to increases in debt and expenses — 39 per cent expect their local economy to improve next year. This number rises to 60 per cent in Alberta.

 

 

One in 5 working Canadians say they could not come up with just $2,000 within a month for an emergency expense; in the last survey, this was 1 in 4. Spending has improved, with only 35% (down from last year) reporting they spend all of their net pay. However, 94% of respondents carry debt.

The role of Payroll Management

The financial risks of growing spending and debt are significant. Even with optimism in the economy [see below], and higher household incomes, the debt load remains a high risk for many.

The Canadian Payroll Association advocates “payroll as a solution”:

“Once Canadians understand that their financial futures are at stake, they need to seriously consider taking action. The Canadian Payroll Association recommends starting small, “Paying Yourself First” and putting a portion from each pay cheque to pay down debt or contribute to long-term savings.”

Many employers are moving to structured Payroll Management Services — often outsourced — to bolster payroll management as a “solution” to the problem.

[Do you have a question about Payroll Management Services? Please ask us on the form at the bottom of this story.]

 

 

Leveraging Payroll Management

Within organisations, payroll is well positioned to help working Canadians take action by arranging automatic payroll deductions for employees. Currently, 53% of respondents indicated their employers offer this option to employees; however 44% of employees still do not participate.

Employers can leverage their payroll department to empower employees to improve their financial wellness through Pay Yourself First programs. And, given that 84% of employees indicate they would be interested in receiving financial education programs through the workplace, employers are uniquely positioned to provide financial literacy tools and resources to help employees take action.

“National Payroll Week, September 10-14, is the perfect opportunity for employers and employees to take stock of their financial situation in view of these survey results,” says Sandra Morrison, CPM, CPHR, and Chair of the Canadian Payroll Association’s Board of Directors. “Payroll has the power to help employees contribute to financial priorities, to lessen personal stress which manifests in the workplace. Powerful payroll is a win-win across the board.”

Optimism in economy

 

“Bolstered in large part by a stronger economy, confidence among working Canadians has increased recently,” reports the Canadian Payroll Association. “39% nationally believe their local economy will improve (up slightly from the three-year average of 36%), not surprising given the strong economic market conditions experienced in Canada in the past few years.”

The optimism continues: ” The past few years have also seen a positive shift in the number of Canadian employees with total household incomes of over $125K, and the levels of full-time employment to 90%.”

 

 

Increased spending; debt growing

On the “downside” is increasing debt levels. Forty per cent of working Canadians feel overwhelmed by their level of debt (up from 35% last year).

Across Canada, more are expecting to take longer to pay down that debt—43% say it will take more than ten years to pay down their debt (up from 42% in 2017 and 36% in 2016). And 12% believe they will never be debt free.  16 per cent report that the primary reason for increased debt is that their spending has increased.

Overall, 94% of national respondents carry debt:

• mortgages 28% nationally
• credit cards 18% nationally
• and car loans 18%
• about one in 5 respondents carry debt through a line of credit.

Nationally, mortgage debt on principal residences remains the most challenging debt to pay down, with 30% of respondents selecting this option, followed by credit card.

Among Canadians, higher living expenses (27%) and unexpected expenses (20%) remain the top two reasons for increased spending, and most (96%) anticipate their cost of living will increase over the coming year.

 

 

Ontario findings

Working Canadians and Ontarians seem to be making some minor progress towards improving their financial health. But while 66% nationally report being in a better financial position than a year ago, Canadian employees and those in Ontario continue to have high debt levels, chronically undersaving for retirement, and put themselves at severe risk in the event of economic changes.

Some Positive Gains, but Ontarians Lack Economic Confidence

Bolstered in large part by a stronger economy, confidence among working Canadians has increased recently. 39% nationally believe their local economy will improve (up slightly from the three-year average of 36%), not surprising given the strong economic market conditions experienced in Canada in the past few years. Ontarians have among the lowest economic confidence nationally; just 35% think their local economy will improve in the next year.

The past few years have also seen a positive shift in the number of Canadian employees with total household incomes of over $125K, and the levels of full time employment to 90%.

According to the Canadian Payroll Association’s tenth annual survey, released today, 44% of working Canadians (and 46% of those in Ontario) report it would be difficult to meet their financial obligations if their paycheque was delayed by even a single week (down from the three-year average of 48%).

One in 5 working Canadians (and Ontarians) say they could not come up with just $2,000 within a month for an emergency expense (previously 1 in 4).

Fewer employees nationally and in Ontario (35%) indicated that they spend all of or more than their net pay.

While 66% of those in Ontario who are trying to save more responded that they have been able to do so (compared to 69% nationally), still 65% of Ontarians said they save 10% or less of their earnings, well below recommended savings levels.

While more working Canadians are in an economic position to save more, it seems Canadians still need a huge reality check when it comes to realising the risks they face and acting on them.

Debt Growing

In spite of these positive gains, debt levels among working Canadians have increased.

Forty per cent of working Canadians feel overwhelmed by their level of debt (up from 35% last year). This is true of 44% of Ontarians. 37% of Ontario employees report increases in the amount of debt over the past year, higher than the national average of 34%.

Across Canada, more are expecting to take longer to pay down that debt—43% say it will take more than ten years to pay down their debt (up from 42% in 2017 and 36% in 2016). And 12% believe they will never be debt free.

Ontarians report that the primary reasons for increased debt are that their spending has increased (17% versus 16% nationally) and they purchased a major asset that would depreciate (17% in Ontario and nationally).

Overall, 94% of national and Ontario respondents carry debt, with the most common debt being from mortgages (28% nationally and in Ontario), car loans (18% vs 19% in Ontario) and credit cards (18% nationally and 17% in Ontario). About one in 5 respondents carry debt through a line of credit. Nationally, mortgage debt on principal residences remains the most challenging debt to pay down, with 30% of respondents selecting this option, followed by credit card debt (25%). However, in Ontario, mortgage debt is most difficult to pay down (32%), followed by lines of credit (25% vs 22% nationally).

Among Canadians, higher living expenses (27%) and unexpected expenses (20%) remain the top two reasons for increased spending, and most (96%) anticipate their cost of living will increase over the coming year.

For the first year ever, the survey results indicate that employees are more concerned with work/life balance (33%) than on earning higher wages (26%). This is especially true of millennials in their 30s (38% rank work/life balance as most important).

However, when asked about the best way to improve their financial well-being, the number one response is higher wages (25% nationally and 21% in Ontario), versus spending less (19% nationally and 18% in Ontario). And while 72% (nationally and in Ontario) concede they have only saved a quarter or less of what they feel they will need to retire, the target retirement age (62 in Ontario and 61 nationally) has not changed from 2017. 51% of Ontarians think they will need more than 1M to retire (50% nationally). A full 37% of Ontarians indicate that they will have to work longer than they planned five years ago (vs 32% nationally).

There is also a surprising avoidance displayed when assessing respondents’ level of comfort discussing finances. Fully 47% indicate they would be uncomfortable talking about debt with a colleague or peer.

Ultimately, the results illustrate that in the event of higher interest rates, a market downturn or other economic factors beyond their control, working Canadians would struggle to recover and could face severe implications.

Employers should take note: currently 46% of employees say financial stress is impacting their workplace performance; this figure could get much worse.