Sixty per cent of employed North Americans are more stressed about their finances today than they were a year ago, and are experiencing the highest level of financial stress since the financial crisis of 2008, according to a new study from Canada’s Financial Wellness Lab at Western.
Conducted in partnership with human resources management software company Ceridian , the study surveyed more than 4,200 workers across the United States and Canada to understand how different demographics are adapting to economic developments, such as inflation and rising interest rates.
Machine learning algorithms were used to group people’s attitudes toward their personal finances into three clusters - stressed, unsettled and comfortable.
The findings showed financial stress is being felt regardless of age, gender or wealth and across each of the Canadian provinces.
Matt Davison, dean, faculty of science and principal investigator, Financial Wellness Lab (Mitch Zimmer)
"Our results showed there are plenty of middle-aged Canadian households with high family incomes in the ’stressed’ cluster," said Matt Davison, dean of science and principal investigator at the Financial Wellness Lab of Canada. "It is tempting to believe all financial problems might be solved by a $10,000 pay raise, but our data shows that isn’t true."
The goal of Canada’s Financial Wellness Lab is to apply finance and data analytics solutions to enable Canadian households to enhance their financial resilience. The Lab leverages strengths of Western’s Faculty of Science in actuarial science, financial modelling and data science, and also involves partners at Wilfrid Laurier University and the University of Winnipeg.
Key findings of the study showed o ne in two workers in North America had tapped into an emergency saving account to pay for necessities in 2022, and that number rose to 67 per cent for those in the ’stressed’ category.
"Whether workers are highly stressed or comfortable about their financial situation, many are dipping into savings and planning to reduce debt. This signals widespread financial insecurity across all demographics," said Davison.
Chuck Grace, program director at the Lab and professor at the Ivey Business School says their analytics were just as likely to show evidence of high savings rates among lower inco me households as low savings rates among higher income households.
" In general, stress cuts across all demographics and the three clusters are similar from that perspective. In late 2022, financial stress is prevalent amongst older and younger respondents, males and females, both high and lower household incomes, families and singles," noted Grace.
Eighty per cent of employed North Americans also said they plan to cut back on discretionary purchases such as dining out, entertainment and shopping, and almost 80 per cent are looking to
Chuck Grace, professor, Ivey Business School, and program director, Financial Wellness Lab (Submitted)
increase income to relieve financial stress in 2023. Almost all of those in the stressed category said they planned to spend differently in the new year.
"We wish we had better news going into 2023," said Grace. "But the new year is also a time of reflection for many people. We would encourage everyone to be proactive and reflect on the financial habits they wish to continue into the new year and those they may choose to change if they can."
The researchers also point out that their research is limited only to those who are currently employed and doesn’t take into account the financial stress being felt by those who are unemployed.
"Our data is silent on the very real difficulties facing those without work," said Davison.