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Financial well-being-survey-results

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FINANCIAL WELL-BEING IN CANADA
SURVEY RESULTS
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FinancialWell-Beingin Canada: Survey Results
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  1. 1. 1 FINANCIAL WELL-BEING IN CANADA SURVEY RESULTS
  2. 2. 2 Informationcontained inthispublicationor product maybe reproduced,inpart or inwhole,and byanymeans,for personalor public non-commercialpurposeswithout chargeor furtherpermission,unlessotherwise specified. Commercialreproductionanddistributionare prohibitedexceptwithwrittenpermissionfrom the Financial Consumer Agency ofCanada. For more information,contact FinancialConsumer Agency ofCanada 427LaurierAve.West,OttawaON K1R1B9 www.canada.ca/en/financial-consumer-agency Cat.No.:FC5-42/1-2019E-PDF(Electronic PDF,English) ISBN:978-0-660-33029-7 © Her Majestythe QueeninRight ofCanada,asrepresented bytheMinisterofFinance Canada,November 2019. Aussi disponibleen françaissousletitre:Le bien-être financierau Canada: Résultatsde l’enquête
  3. 3. 3 FinancialWell-Beingin Canada: Survey Results Financial well-beingisthe extentto which you can comfortablymeet all of your current financial commitmentsand needswhile alsohavingthe financial resilience tocontinue doingso inthe future.1 But it is not only about income.It is also about having control over your finances,beingable to absorb a financial setback,beingon track to meetyour financial goals, and—perhapsmost of all—havingthe financial freedomto make choicesthat allow you to enjoylife. Generally,people whohave highlevelsof financial well-beingare not stressedabout money and are able to cope withunexpectedexpenses.Incontrast, people withlow levelsof financial well-beinghave difficultymeetingtheirfinancial commitmentsanddo not have much moneyin reserve for emergencies.Betterfinancial well-beingisassociatedwithlessstress and greater mental and physical health.2 The Financial Consumer Agencyof Canada (FCAC) participatedin a multi-countryinitiative thatsought to measure financial well-being.FCACconductedthis surveyto understand and describe the realitiesof Canadians across the financial well-beingspectrumandhelppolicy-makers,practitionersand Canadians themselvesachieve betterfinancial well-being.Thisisin keepingwiththe Agency’songoing work to monitor trends and emergingissuesthat affectCanadians and their finances. Previousresearch3 has foundthat certain behavioursand economic factors are the key driversof financial well-being.These,inturn,are drivenby psychological influences(suchas impulsivity,self- control, locus of control,time orientation,actionorientation,4 and attitudestoward spending,savingand borrowing).The analysesin thisreport are basedon the Kempson et al. model,illustratedinFigure 1. 1 Kempson,E.,Finney,A.,& Poppe,C.(2017).Financial well-being:A conceptual model andpreliminary analysis (Project noteno. 3-2017).Retrieved fromhttps://www.researchgate.net/publication/318852257_Financial_Well- Being_A_Conceptual_Model_and_Preliminary_Analysis. 2 Hess,D.(2016).FindingtheLinksBetween Retirement,Stress,and Health.Lockton.Retrievedfrom: https://www.lockton.com/whitepapers/Finding_the_Links_Between_Retirement__Stress__and_Health.pdf. 3 Kempson etal.(2017). 4 In personality psychology,locusof control isthedegreeto which peoplebelievethey havecontrol overtheoutcomeof events in their lives,asopposed to believingthatoutcomesaredrivenby external forcesbeyondtheircontrol.Time orientation reflectsapreferencetoward past,presentor futurethinking.Action orientation isabouta person’stendency to takeactionto addressproblemsor achievegoals.
  4. 4. 4 Figure 1 – Categories of factors relating to financial well-being In this model,financial well-beingisdeterminedby5 categoriesof factors: • financial behaviours(e.g.,savingand borrowing) • social factors (e.g.,age, employmentstatus) • psychological factors (e.g.,confidence,attitudestoward money) • economic factors (e.g.,income) • financial knowledge andexperience (e.g.,experience withfinancial products)1 The surveyused a numberof questionsto measure each of these categoriesof factors. The responses were then combinedinto relatedvariables.Figure 1 liststhe variablesincludedineach category. In November2018, FCAC releaseda Backgrounder report containingpreliminaryresultsof the survey and a comparison of Canada’s overall resultsversus those of Australia,New Zealand and Norway. This report expandson those resultsby: • describingfinancial well-beinginCanada • identifyingthe keybehaviours,attitudes,knowledge andexperiencesthatare associatedwith financial well-being • describingthe realitiesof Canadiansacross the financial well-beingspectrum • making recommendationsfor Canadians,includingpolicy-makersand practitioners(such as credit counsellors,financial advisorsand educators)
  5. 5. 5 Key messages • Many Canadians are doing reasonablywell financially • Income isimportant, but so are behaviours • Financial well-beinghasa stronger relationto behavioursthan to economicfactors • Canadians who activelysave have higherlevelsof financial well-beingthanthose withsimilar incomeswho don’t • Canadians who avoidborrowing to meet dailyexpenseshave higherlevelsof financial well- beingthan those who borrow regularly,regardlessof income • Financial confidence and attitudestoward spending,savingand borrowing are important • For people withlessfinancial well-being, financial confidence andfeelingincontrol of the future are stronglyrelatedto financial well-being • Generally,olderCanadians who make positive financial choicesand have the benefitof experience have the highestlevelsof financial well-being Survey methodology In February 2018, FCACconducted an online surveywitha sample of Canadians aged 18 years and older.A very similarsurveyhad previouslybeencompletedinNorway,Ireland,Australiaand New Zealand.Slightchanges were made to some of the questionsto adapt themto each country’s context, but the resultsare largelycomparable. We selectedrespondentsrandomlyfrom a broad pool of Canadianswho volunteerto participate in online surveys.Online surveyshave become commonplace in Canada, and findingshave beenshown to generalize well.5 The surveywas completedby a sample of 1,9356 Canadian residentsrepresentative of the distributionof gender,regionand age inCanada.7 The surveytook approximately15 minutesto complete.Further detailsabout the methodologycan be obtainedfrom Library and ArchivesCanada.8 Results This sectiondescribesthe surveyresults.Specifically, itdescribesCanadians’overall levelsof financial well-beingaswell as components of the financial well-beingmodel thatare most stronglyrelated to financial well-being. 5 See Braunsberger,K.,Wybenga,H.,& Gates,R.(2007).“Acomparisonof reliabilitybetween telephoneand web-based surveys.”Journal of BusinessResearch,60(7),758–764. 6 An additional 99surveyswererejectedduean insufficientnumberof validresponses.Valid responsesincluded all answers except“don’tknow”or “prefer notto answer”. 7 As an incentivefor theirparticipation,Ipsos(theresearchfirmthatcontacted participants) offered respondentspoints they could redeemfor productsfromonlineretailers,suchasgiftcardsandprizes.Theseniors(65yearsandover) in our samplehadhigher incomesthantheCanadian averagefor thesameagerangereported by StatisticsCanada,butwere similar interms of education,marital statusandemploymentstatus,andhadslightly lower levelsof homeownership withouta mortgage. 8 http://epe.lac-bac.gc.ca/100/200/301/pwgsc-tpsgc/por-ef/financial_consumer_agency/2018/086-17- e/summary/Exec_Summary_Appendices_excluding_tabs_HTML5_Eng.html.
  6. 6. 6 Most Canadiansare doing reasonably well financially. To assessCanadians’ overall financial well-being, we calculateda Financial Well-BeingScore out of 100 for each survey respondent.The average score was 66. Looking at the distributionof scores (Figure 2), we can see that three quarters (74%) of Canadians had a score of greater than 50. As we explainbelow,Canadianswho scored above 50 are consideredeither FinanciallySecure (if theyscored over80) or Somewhatfinanciallysecure (if they scored 51 to 80). We can also see that about one quarter of Canadians(26%) had Financial Well-BeingScoresof less than 50. These Canadians are consideredto be Strugglingsomewhat (if theyscored 31 to 50) or Strugglinga lot (if theyscored 30 or less) withtheir finances. Figure 2 – Overall financial well-being The overall Financial Well-BeingScore can be dividedinto3 components: • meetingcommitments(for example,beingable to pay billsontime) • feelingfinanciallycomfortable (forexample,the extenttowhichfinancesallow someone to do the thingsthey want and enjoylife) • resilience forthe future (forexample,the abilityto deal with unforeseenexpenses)
  7. 7. 7 We calculated mean scores for these 3 components.Canadians obtainedmean scores of: • 81 for meetingcommitments • 61 for feelingfinanciallycomfortable • 60 for resilience forthe future Figure 3 shows the distributionof scores for Canadians for each component. While most Canadians were very strong at meetingall of theircommitments (Figure 3a), the extentto which theyfeltcomfortable financiallyranged greatly(Figure 3b). Clearly,many Canadians are meeting theircommitments,but do not feel theirfinancial situationallowsthemto do the thingsthey want. Some Canadians are in a good positionto be resilientforthe future—forexample,approximately30% had a score of 80 or greater for this component—butmany others have lowerlevelsof resilience (Figure 3c). These results tell usthat Canadians stand to benefitfrom strategiesthat wouldallow them to build more buffersintotheir spendingplansand be better preparedfor financial setbacks, such as unexpectedexpendituresora drop in income. Figure 3 (a, b, c) – Canadians’ scores on 3 key components of financial well-being We considered5 categoriesof factors—financial,economic,psychological,social,and knowledge and experience factors—andconducted analysesto determine whichof them9 were most stronglyrelated to Canadians’ financial well-being.Eachset of factors containeda numberof relatedvariables.For example,variablesinthe economic factors category includedincome,work status and home ownership.Knowinghow these factors and their underlyingvariablesrelate to Canadians’financial well-beingisimportantfor policy-makersandpractitioners—suchas creditcounsellors,financial advisors and educators—whoare lookingfor advice on which behaviours,experiences,attitudes,types of knowledge, andsocial or economic differencesare most closelyrelatedto financial well-being. 9 Previouswork on thefinancial well-beingmodel (e.g.,Kempsonetal.,2017),foundthatthesefactorswererelated to financial well-being.
  8. 8. 8 The cross-sectional data yieldedbythe surveydon’t tell us definitivelythatimprovinga person’sscore in 1 area will improve theiroverall financial well-being.However,knowinghow each of these factors relatesto financial well-being—andunderstandingthe relative strengthof the relationshipsbetween them—isthe first step toward targeting areas for improvement. Income is important,but so are behaviours. As shown inFigure 4, financial well-beingincreasessignificantlyashouseholdincome risesabove $50,000. However,the average Financial Well-BeingScore does not differbetweenhouseholdswith income between$50,000 and $150,000 (dark blue bars). Financial well-beingonlyrisesagainfor the highestincome group (more than $150,000). In other words, the relationshipbetweenincome and financial well-beingisstrongestfor Canadian householdswithverylow or very high incomes.The fact that there is little change infinancial well- beingacross most income groups isconsistent withthe findingthat other factors, such as behaviour, have a greater impact on financial well-being.Thisfindingisstrikingbecause it iscounter-intuitive and contrary to many people’sbeliefsthathigherincome alone alwaysleadsto greater financial well- being.10 Figure 4 – Financial Well-BeingScores by household income 10 In the Canadian Payroll Association’s2018 survey,when asked “Whatwouldbethesinglemosteffectivestep you could taketo improveyour financialsituation?”themostpopular responsewas“earn more”.Thisresultwasconsistentwith resultsof theassociation’s2015–17 surveys.
  9. 9. 9 Financial Well-BeingScoresvary greatly withineach income bracket (Figure 5). Notably,there are some Canadians in highincome brackets (that is, with annual householdincomesover$100,000) who report relativelylow financial well-being(Financial Well-BeingScore below 50: orange and red bars), while some inthe lowestincome brackets (householdincome under$25,000) report relativelyhighfinancial well-being(Financial Well-BeingScore 50 to 100: dark blue and teal bars). Figure 5 – Level of financial well-beingby household income bracket Financial well-being is more strongly related to behavioursthan to economic factors. While economic factors (includinghouseholdincome) clearlyplayan important role ina person’s financial well-being,11 ourmodel showsthey are not the factors with the strongestrelationshipto financial well-being.We foundthat for Canadians’Financial Well-BeingScores: • 23% of their score was relatedto financial behaviours • 19% was related to economic factors • 12% was related to psychological factors • 12% was related to social factors • 4% was relatedto knowledge and experience This tellsus that how a personmanages their money(for example, how oftenthey save and how often they borrow) has the strongest relationshipto theirFinancial Well-BeingScore,followedbyeconomic 11 Vlaev,I.,& Elliot,A.(2013).Financialwell-beingcomponents.Social IndicesResearch,118,1103–1123.
  10. 10. 10 factors, such as income,owning versusrentinga home,and employment(workingfull-time versus workingpart-time or beingunemployed).These resultsimplythat to improve theirfinancial well-being, Canadians have optionsother than changing their income or work status. They may be able to get good resultssimplyby alteringcertain financial behaviours. Canadianswho actively save have higher levels of financial well-being than those with the same income who don’t. Next,we examinedhow each individual variable (consideringall 5 categories of factors) related to financial well-being.The variable withthe strongestrelationshipwas active saving,which relatedto 10% of the variabilityinFinancial Well-BeingScores. We assessedactive savingthrough questionsabouthow often someone: • saved moneyfor unexpected,majorexpensesor a drop in income • triedto save funds to fall back on during hard times • triedto save regularly,evenif onlya small amount On the surface, it may seemobviousthat people whoearn enough moneyto be able to save would have higherfinancial well-being.However,thatis not the whole story.The analysis controlledfor economic and demographic differencesbetweenindividuals,suchas income,age, numberof dependentchildren,workstatus and more.This findingdemonstratesthat intentionallysettingmoney aside is the variable most stronglyrelated to financial well-being,regardlessof income level orother demographic influences. Because active saving accounted for such a large portion of the Financial Well-BeingScore,we wanted to better understandthis behaviourso we could guide Canadians and helppractitionersencourage it.12 Broadly, we found that psychological factors are the onesthat have the greatest relationshipto whetheror not a Canadian regularly savesmoney.13 More specifically,the wayCanadians thinkand feel about moneyaffectswhether or not they save. 14 Perhaps not surprisingly, those who have positive attitudestoward savingand negative attitudestoward borrowing are more likelytosave.As well,those who take a long-termview are more likelytosave compared with those more inclinedto live for the moment. The same principle appliestoCanadians who feel confidentaboutmanaging their moneyday to day, planningfor their financial futures,and making decisionsaboutfinancial products and services:they are more likelytosave and have higherlevelsof financial well-beingthanthose who feel lessconfident about money management. 12 Weconducted a regressionanalysisusingactivesavingasthedependentvariableandvariablesfromthepsychological, economic,social,and knowledgeandexperiencecategoriesastheindependentvariables.Wedidnotincludethe7 remainingvariables fromthefinancial behaviourscategory becausethey areinter-related. 13 Psychological factorsaccounted forthehighestpercentageof variability in activesavingscores(21%),followed by economicfactors(17%).Social aswell asknowledgeandexperiencefactorsaccounted forsmallerportionsof thevariability (5%and 4%,respectively). 14 The attitudestoward spending,savingandborrowingvariableaccounted for 6%of thevariability in activesavingscores, followedby timeorientation(4%) and financial confidence(4%).
  11. 11. 11 Helpingsomeone to developa new mindsettoward spending,savingand borrowing or changing their perspective onhow much control theyhave over theirlife may be challenging.However,unlike social/demographicfactors (such as age,gender or number of dependents),psychological factorslike these can potentiallybe modified.15 Giventhe findingthatpsychological factors are stronglyassociated withfinancial well-being, thispotential malleabilityisencouragingbecause it may lead to innovative interventionstohelpCanadians improve theirfinancial well-being. Canadianswho avoid borrowing to meet daily expenses have higher levels of financial well-being than those who borrow regularly, regardless of income. The variable with the next strongestrelationshipto financial well-beingwasa financial behaviour:not borrowing for dailyexpenses.Itrelatedto 5% of the variabilityinFinancial Well-BeingScores.We assessedthisvariable through questionsabout how often a person borrowed moneyto pay off debts, was overdrawn on theirbank account, or usedcredit for food and dailyexpensesbecause theyhad run short of money.As describedabove, thisresulttakes into account elementssuchas income and demographics.It indicatesthat whenall other elementsare constant, not borrowing for dailyexpenses is the variable most stronglyrelatedto financial well-being.Itappearsthat individualswhofindwaysto avoid borrowingfor dailyexpenses—forexample,byreducingtheir spending—have higherfinancial well-beingregardlessof income level, savingsbehaviours,familystatus,home ownership, educationor work status. Generally,we found that whethera Canadian borrowedfor daily expenseswasmost stronglyrelated to both psychological and economicfactors.16 Similarto what we learnedabout active saving, those who had positive attitudestoward saving and negative attitudestoward borrowing were lesslikelyto borrow (as were those with higherfinancial confidence).We also foundthat those who were good at resistingtemptationand breaking bad habits,and who feltincontrol of themselves,were lesslikelyto borrow for daily expenses.17 These insightsinto the variablesrelatedto not borrowing for dailyexpensesmayhelppractitioners pinpointareas to focus on withCanadians who want to improve their financial well-being.For example,withCanadianswho tend to borrow moneyfor dailyexpenses,practitionersmightlookfor ways to helpthem buildtheirfinancial confidence,increase theirself-control,andchange their attitudestoward spending,savingand borrowing. Overall, financial well-beingwasmoststrongly relatedto 2 financial behaviourvariables:active saving and not borrowingfor dailyexpenses.Differencesinthese behaviourswere,inturn, most strongly associated withpsychological and economic factors. For both of these financial behaviours, financial 15 For example,Magidson,J.F.,Roberts,B.W.,Collado-Rodriguez,A.,& Lejuez,C. W.(2014).Theory-driven interventionfor changingpersonality:Expectancy valuetheory,behavioral activation,and conscientiousness.Developmental Psychology, 50(5),1442–1450. 16 Psychological and economicfactorseach accounted forapproximately13%of thevariability in the“notborrowingfor daily expenses”scores.Socialfactorsaswell asknowledgeand experiencefactorsaccounted forsmallerportions(5%and 3%,respectively). 17 Attitudetoward spending,savingand borrowingaccounted for6%of thevariability inthe“notborrowingfor daily expenses”scores,followed by financialconfidence(3%) and self-control (2%).
  12. 12. 12 confidence and attitudestoward spending,saving and borrowing were behindmost of the variabilityin Financial Well-BeingScores. Financial well-being groups To gain insightintothe proportion of Canadiansexperiencingdifferentlevelsof financial well-being and understand more about what the levelsmeanin practical terms, the studyplaced Canadian respondentsinto1 of 4 groups based on their Financial Well-BeingScores.These groups representhow well theirmembersare doing financially.The 4 groups are: • FinanciallySecure • SomewhatSecure • StrugglingSomewhat • Strugglinga Lot18 In this section,we presentthe proportion of Canadians ineach group and discuss: • how each group tendsto describe its financial situation • demographic informationabout the group • the variablesrelatedto financial well-beingwithinthe group • how the groups differfrom each other Figure 6 shows the range of Financial Well-BeingScoresthat were used to create the groups and the percentagesof Canadians in each. As mentionedearlier,Canadianson the whole seemto be doing reasonablywell:more than 74% fell intothe top 2 groups, FinanciallySecure and SomewhatSecure. 18 The groupswereconstructedaccordingto guidelinessetby D.Hayes,J.Evansand A.Finney.Formoreinformation,see: http://www.bristol.ac.uk/media- library/sites/geography/pfrc/Momentum%20Index%20PFRC%20March%202016%20FINAL%20Report%20- %20after%20minor%20revisions%20(15_08_2016)%20%20.pdf.
  13. 13. 13 Figure 6 – Percentage of Canadian respondents in each financial well-beingcategory To offera better understandingof what the financial situationislike for Canadians inthese groups, includingtheirdemographic compositions,we describe the groups in the next section. Note that the main elementsthatare relatedto a person’s financial well-beingwouldlikelybe differentforeach group. For example,Canadiansin the Struggling a Lot group might findthat their financial well-beingisrelatedto differentinfluencesthanthose in the FinanciallySecure group. To explore thispossibility,we alsolookedat each group individuallyandexaminedwhichvariableswere relatedto financial well-beingwithinthe group. 19 19 Weconducted regression analyseswithineachgroup to determinethefactorsmoststrongly related to financial well- beingwithin thatgroup.
  14. 14. 14 Among membersof the FinanciallySecure group, income was the variable most strongly relatedto financial well-being.Thisisconsistentwiththe finding(describedearlier) thatincome doesmake a difference atthe high endof the income spectrum: all membersof the FinanciallySecure group have a fairlyhigh level of financial well-being,butwithinthisgroup, those with the highestincomes tendedto have the highestFinancial Well-BeingScores. At very highlevelsof income,people can enjoya very highlevel of financial well-beingwithoutbeing cautious about how each dollar is spent. They can make small mistakesand recover from them without long-termimpacts. They can easilycovertheir necessaryexpenses,affordsome “wants” or luxuries, and still put some moneyaside for the future. This is not to say it isimpossible forsomeone withvery high income to have difficultycoveringtheirexpenses,butclearlythe challengesandopportunitiesare differentthanat lowerlevels.Individualswithhigherincome also tendto have more disposable income and opportunitiestogain experience witha range of financial products and services.For example,topurchase investmentproducts and access professional financial advice,youneedmoney, both to investand to pay for the advice. Knowledge of moneymanagement (i.e.,knowinghow to plan spendingagainst income,choose the right savingsproducts, and choose the right consumerloans and creditcards) was also stronglyrelated to Financial Well-BeingScoresin this group. This findingdemonstratesthat financial well-beingisnot just about how much money someone has; everyone inthe FinanciallySecure group has a high level of financial well-being.Whatdistinguishesthose whoare doing well fromthose who are doing very well are skillsrelatedto how theymanage the money theyhave. This isan important considerationfor Canadians and practitioners,since these knowledge areasand skillscan be learnedand developedover time.
  15. 15. 15
  16. 16. 16 Among the SomewhatSecure group, the numberof dependentchildrenlivingathome was strongly relatedto financial well-being.Those whohad fewer(or no) dependentchildrenat home tendedto have higherfinancial well-beingthanthose with more. This likelyhasto do with the number of people beingsupported by the household’sincome today and into the future.The anticipationof future costs to support dependents(suchas the needto pay for their education) may add considerable stressto these Canadians. The number of childrenlivingat home is oftenhighlycorrelatedwith an individual’s age, peakingin the mid-adultyears. As people getolderand approach retirement,theirchildrenoften become independentandleave home. Those who ownedtheirhome (as opposedto renting) tendedto have higher financial well-being, especiallythose whowere mortgage-free.This islikelybecause of the effectthat housingcosts have on disposable income.Beingmortgage-free isfrequentlyassociatedwithlife stage: youngadults oftendo not own a home,but as theybecome establishedina career and perhaps start a family,they purchase one witha mortgage, and pay the mortgage off over time.
  17. 17. 17 It is important to note that paying a mortgage off over time (as opposed to continuingto carry it) is advantageous.Historically,this was the onlyoptionfor most people,butin recent years, home-equity linesof credit (HELOCs) have beengaining inpopularityin Canada. The problemisthat witha HELOC, 27% of Canadians make interest-onlypaymentsmostmonths or every month,20 resultingindebt persistence. For people whoare SomewhatSecure,a HELOC can provide useful flexibilitywhenit comes to fundingrenovationsor other major home expenses.Butfor home owners who will struggle to pay themoff reasonablyquickly,HELOCs can leadto unintendedconsequencesandwealth erosion. Practitionersshouldkeepthis in mindwhen advisinghome buyers on theiroptions for fundinghome purchases and ongoing home expenses.Theyshouldhighlightthe importance of paying down mortgages and avoidingconsumerdebt to reach long-termfinancial goals. 20 Financial ConsumerAgency of Canada,Homeequity linesof credit:Consumer knowledgeandbehaviour(Ottawa,ON: Financial ConsumerAgency of Canada,2019).
  18. 18. 18
  19. 19. 19 Our analyses of the Struggling Somewhatgroup revealedthat not borrowing for dailyexpenseswasthe variable most strongly associatedwith higherfinancial well-being.Aswithall Canadians surveyed, Canadians in thisgroup whodid not borrow to cover theirdaily expensestendedtohave higher levels of financial well-being.Thisresulttakesinto account elementssuchas income and number of children at home,and indicatesthat whenall otherelementsare constant, not borrowing for dailyexpensesis the variable most strongly relatedto financial well-beinginthisgroup. This indicatesthat having low income, or low amounts of disposable income,isnot the onlyreason for borrowing for dailyexpenses;withinthisgroup, individualsare making differentchoicesabout how to manage their cash flow,withsome borrowing to cover dailyexpensesandothers not. Those who are findingways to avoidborrowing for dailyexpenses—perhapsbycuttingback or putting off regular expenseswhenan unexpectedexpense comesup—have higherlevelsof financial well-being.
  20. 20. 20 Our analyses showedthat having post-secondaryeducationwas stronglyrelatedto financial well-being for Canadians in thisgroup. In general, post-secondaryeducationwas associated withhigher earning potential21 and higherfinancial literacy.22 Thisindicatesthat lower-income Canadianshave the potential to benefitfromincreasedearnings through educationevenmore than do Canadians in higher-income groups.Canadians in the Struggling Somewhatgroup may wishto consider whether additional trainingcould improve the opportunitiesavailable tothem and, inturn, theirfinancial well- being. 21 StatisticsCanada.Doeseducation pay?Acomparison of earningsby level of education inCanadaand its provincesand territories.Retrieved from:https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016024/98-200- x2016024-eng.cfm. 22 Financial ConsumerAgency of Canada.(2015).Managingmoney and planningforthefuture:Key findingsfromthe2014 CanadianFinancial Capability Survey [PDF].
  21. 21. 21
  22. 22. 22 Withinthe Struggling a Lot group, Canadians who had a higherscore for locus of control tendedto have higherfinancial well-being.Locusof control refersto the extentto which people believe they have control over the outcomes of eventsin theirlives,as opposedto external forcesbeyond their control having more influence.A respondent’sscore in thisarea was based on theirlevel of agreement withthe 3 followingstatements: • “I can pretty much determine whathappensin my life” • “My financial situationis largelyout of my control” (reverse coded) • “When I make financial plans,I do everythingIcan to succeed”
  23. 23. 23 Sometimeswhena person feelseverythingisoutof control, an advisable approach is to findone achievable goal and focus on that.23 Practitionerscan support people inthis situationby helpingthem identifyanappropriate goal and relatedresources. For example, those who struggle with filingtheir taxesmight benefitfromvisitinga Community VolunteerIncome Tax Program, where a volunteer could helpthem.This act alone couldbe extremelybeneficial bymakingsome individualsaware of benefitstheymay qualifyfor and are not currently receiving.OtherCanadians might have information or otherresources available to them at work, such as through theirhuman resourcesdepartment or an employee assistance program. The Governmentof Canada has a wealthof resources available at www.Canada.ca/moneyto helpCanadians manage their money. 23 Robitaille,N.(2018).Managingyourdebtrepaymentgoals.Retrieved fromhttp://www.rotman.utoronto.ca/- /media/Files/Programs-and-Areas/BEAR/FINLIT2018/19-Day-1-1615- Robitaille.pdf?la=en&hash=715D82E7A22030D69C75ECFAF41DBE4C68BFB608
  24. 24. 24
  25. 25. 25 Howdo these groups differfrom eachother? Next,we exploredhow the 4 groups differed24 intheirfinancial behaviours, psychological characteristics, knowledge andexperience,anddemographics.25 At the lower end of financial well-being, locus of control and financial confidence played larger roles. The StrugglingSomewhat and Struggling a Lot groups shared similardemographics,includingannual householdincome,education, home ownershipand number of childrenunder 18 at home.Where the 2 groups differedwasin keyfinancial behaviourvariables(active saving, not borrowing for daily expenses,26 andspendingrestraint) and 2 psychological variables(locusof control and financial confidence). These key behavioural and psychological differencesmaybe contributing to the differencesinfinancial well-beingbetweenthese groups. Therefore,whenpractitionerswork withclientswho have relatively low financial well-being, theymayfindsuccess in helpingthemidentifywaysto save actively,limit borrowing for dailyexpenses,andrestraintheir spending.Practitionerscouldalso helpclientsgain financial confidence bysuggestingsteps theycould take to experience successinmoneymanagement and ways to helpthemfeel more incontrol of their future. Where tight financial restraintslimita person’sfinancial well-being,changesto these behavioursand psychological factors have the potential to increase theirfinancial well-beingsuchthat they may be able to transitionfrom Strugglinga Lot to StrugglingSomewhat. At the upper end of financial well-being, life stageplayed a larger role. Members of the FinanciallySecure group appeared to be ina league of theirown, scoring significantly higherthan membersin all other groups on the financial behaviour, psychological,and knowledge and experience measures.Thisgroup also stood out in terms of several demographic factors: on average, they were significantlyolder;the percentage holdingat leasta bachelor’sdegree was significantly higherthan inall the other groups; theyhad significantlyfewerchildrenunderthe age of 18 at home; and they were more likelytoown their homes. The SomewhatSecure group layin the middle.Itsmembersreported more financiallybeneficial behaviours, psychological attributes,and knowledge andexperience thanthose in the Struggling Somewhatand Strugglinga Lot groups, but still significantlyfewerthanthose inthe FinanciallySecure group. Demographically,the Somewhat Secure group had higher householdincomesand a higher percentage of members witha bachelor’sdegree compared with the Struggling Somewhatand Strugglinga Lot groups, but lowerhouseholdincome and lesseducation on average than those in the FinanciallySecure group. Those in the Somewhat Secure group were more likelytohave a mortgage and more childrenunder age 18 at home than those in the FinanciallySecure group. 24 Based on Bonferroni multiplecomparisonsof themean scoresfor each group forthevariablebeingdiscussed. 25 Recall thatthebehaviour,psychological,and knowledgeand experiencescales werecoded suchthathigherscoreswere associated with better financial well-being. 26 Recall thatthisvariablespecifiedthatborrowingwasbecausetheindividual ran shortof money.
  26. 26. 26 Based on these patterns, we exploredwhetherit ispossible that life stage is a key difference between the SomewhatSecure and FinanciallySecure groups. Specifically,we wonderedif many Canadians in the SomewhatSecure group are simplyyounger versionsof those in the FinanciallySecure group who may well move into that group over time if they practise good financial habits,such as payingoff their mortgages, avoidingdebt and savingregularly. As the previousdescriptionsshowed,Canadiansin the Somewhat Secure group are generallydoing well,butface financial demands (such as raisingchildrenand payingoff mortgages) that are lesslikely to be an issue for olderCanadians, like those inthe FinanciallySecure group. For example,Canadiansin the FinanciallySecure group are more likelytobe 60 years of age or older compared withrespondents in the Somewhat Secure group.27 They are also more likelytobe retired 28 and to have paidoff their mortgages.29 Canadiansin the SomewhatSecure group are almost twice as likelytohave children under the age of 18 livingat home versusthose inthe FinanciallySecure group.30 Giventhat as a person ages,they are lesslikelytohave childrenat home—and that if theyhave been diligentlypayingoff a mortgage, they are more likelytoown theirhome outright eventually—these 2 keydemographic differencesbetweenthe SomewhatSecure and FinanciallySecure groups appear to be mainlyrelatedto age and life stage.Knowledge andexperience of financial products could also increase with age as a person’scircumstances change and theybecome more aware of products that suit a varietyof needs.If theyhave adequate resources and have maintainedgood financial habits throughout adulthood, they are more likelytohave other assets,such as savingsand investments. The FinanciallySecure group also had higherscores on all of the variablesin the psychological factors category exceptfor social status.31 While it ispossible that the higherscores in the psychological factors category are also age-related,32 anotherpossibilityisthatmembers of this group have always had relativelyhighcapabilitiesinthese areas. It ispossible that the current group of seniorshas a higherproportion of people withpsychological perspectivesthatbenefittheirfinancial well-being. There isno guarantee that youngerCanadians will move into the FinanciallySecure group through aging alone. 27 The proportion of respondentsaged 60or older in theStrugglinga Lot,StrugglingSomewhatand SomewhatSecure groups ranged from18%to 24%.However,theproportion was50%intheFinanciallySecuregroup,andstatisticalanalyses revealed thatthisgroup wasdifferentfromtheothers. 28 The proportion of retireesintheStrugglinga Lot,StrugglingSomewhatandSomewhatSecuregroupsranged from19%to 23%.However,theproportionwas47%in theFinancially Securegroup,and statistical analyses revealedthatthisgroupwas differentfromtheothers. 29 The proportion of homeownerswithoutmortgagesranged from9%to 23%in theStrugglinga Lot,StrugglingSomewhat and SomewhatSecuregroups.However,theproportion was52%intheFinancially Securegroup,andstatistical analyses revealed thatthisgroup wasdifferentfromtheothers. 30 The proportion of respondentswith children under18 yearsof agelivingathomewas22%in theSomewhatSecure group and 12%in theFinancially Securegroup.Statistical analysesrevealedthattheseproportionsweredifferent. 31 The social statusvariablemeasured theextentto which apersoncared abouthowother peoplesawthemor theirstatus, includingtheirdesirefor peopleto respectthem. 32 Thereis evidencethatpeoplebecomemoreconscientiousasthey growolder (Allemand,Zimprich& Hendriks,2008; Donnellan & Lucas,2008;Lucas& Donnellan,2011;McCraeetal.,1999)andthatconscientiousnessisrelated to all of the variablesin thepsychological factorscategory (deBruijn,deGroot,van den Putte& Rhodes,2009;Donnelly,Iyer & Howell, 2012;Dunkel & Weber,2010;Jensen-Campbell,Knack,Waldrip& Campbell,2007;Judge,Erez,Bono & Thoresen,2002; Jostmann & Koole,2010;Kuhl & Fuhrmann;1998;Olson,2005;Penley & Tomaka,2002;Verplanken & Herabadi,2001; Whiteside& Lynam;2001;Zimbardo & Boyd,2015).
  27. 27. 27 Giventhe demographic differencesbetweenthe SomewhatSecure and FinanciallySecure groups, and the plausible explanationsforthe FinanciallySecure group having higherscores on variableswithinthe psychological and knowledge and experience categories,we suggestthat life stage plays a large role at the upperend of the financial well-beingscale. This doesnot mean that no younger people are inthe FinanciallySecure group or that aging alone is enoughto bump someone intothe FinanciallySecure group. But it doesappear that some younger and middle-agedadultswhohave higherlevelsof financial well-beingandhave developedhealthyfinancial habits will likelymove intothe FinanciallySecure group at a later life stage.These habitsinclude making an effortto activelysave money,carefullyconsideringhow moneyis spent, managing debt appropriately, and making informedfinancial decisionsandproduct choices.
  28. 28. 28 Conclusion Overall,three quarters of Canadians have a Financial Well-BeingScore of 50 or more, which places them ineitherthe Somewhat Secure group or the FinanciallySecure group. This means that about a quarter of Canadians are struggling withtheir financesto some extent. An area of strength for Canadians is payingbillson time.However,unfortunately, many Canadians do not have a lot of bufferin theirbudgets. Thisis a concern giventhat Canadians currentlyhave record- high debtlevels,accumulatedduring the recent periodof historicallylow interestrates.33 Whenrates rise, or if other macro- or micro-economicfactors change, some Canadians—particularlythose in the bottom 3 financial well-beinggroups—will finditmore challengingtomake all of theirbill paymentson time.Therefore,it iscriticallyimportant that we continue to take stepsto helpCanadians improve theirfinancial planning,saving,attitudes toward money, and knowledge of money management.This will helpthemprepare to face rising interestrates,economic downturns and other financial challenges that may lie ahead. Economic elements,suchas employmentstatus and income,will alwaysbe important componentsin financial well-being.Ouranalysisshowedthat Canadians livinginhouseholdswithincomes below $50,000 had significantlylowerlevelsof financial well-beingthanthose in higher-income households. But the resultspresentedin thisreport show that income is not the onlyelementthat determines financial well-being,andisnot eventhe elementwiththe strongestconnection to financial well-being, for Canadians as a whole.Financial behaviours,such as saving and borrowing,were more strongly relatedto financial well-beingthanelementssuchas income,employmentstatus and home ownership.The resultsof our analysesshow that these behaviourshave positive effectsevenwhen demographic elements(suchas number of dependentchildren) andeconomicelements(suchas income) are taken into account. This is encouraging newsfor Canadians who wishto improve their financial well-being,because forsome,it may be more possible to change these behavioursthan to increase their income significantlyorchange theiremploymentstatus. The surveyresults indicate that psychological factors are also stronglyrelatedto financial well-being.In particular, Canadians who were financiallyconfidentandpreferredsaving to spendingand borrowing tendedto have higherfinancial well-being.A numberof researchers have alsofound a linkbetween financial confidence and financial outcomes.34 Understandingmore about how to helpsomeone improve their confidence—aswell astheirknowledge of day-to-daymoney managementand their abilityto plan for theirfinancial future and make decisionsaboutfinancial products and services—will be an important research questiongoing forward. 33 Poloz,Stephen S.Bank of Canada.Canada’sEconomy and HouseholdDebt:HowBigIs theproblem? May1,2018. https://www.bankofcanada.ca/2018/05/canada-economy-household-debt-how-big-the- problem/#targetText=At%20the%20end%20of%20last,three%2Dquarters%20of%20this%20debt(May 2018). 34 Palmeta,Nguyen,Shek-wai Hui,& Gyarmati,2016.Thelinkbetween financial confidenceand financial outcomesamong working-agedCanadians.https://www.canada.ca/content/dam/canada/financial-consumer- agency/migration/eng/resources/researchsurveys/documents/link-confidence-outcomes.pdf. Scerbina,etal.(2017).Measuringup:Canadian Resultsof theOECD PISA2015Study. https://www.cmec.ca/Publications/Lists/Publications/Attachments/371/PISA2015_FL_EN.pdf.
  29. 29. 29 Despite the fact that many Canadians had reasonablyhigh levelsof financial well-being—74% of Canadian respondentshad a score of 50 or more—there was a great deal of variability.The trends we observedprovide some insightsinto how bestto helpCanadians at differentlevelsof financial well- being.Canadians in the Struggling a Lot and Struggling Somewhatgroups differedincertain key behaviours, includingmakingregular effortsto activelysave and findingways to avoid borrowingfor dailyexpenses.Althoughithas yet to be tested,thisfindingsuggeststhat helpingCanadiansin the Strugglinga Lot group findways to avoid borrowing for dailyexpenses(whichmayinclude bolstering spendingrestraint) and increase theireffortsto save could helpimprove their level of financial well- being. These 2 groups alsodifferedin2 psychological variables:locus of control and financial confidence. HelpingCanadians withvery low financial well-beingfeel more control over their financial futuresand more confidentabout theirmoney managementand financial decision-makingskillsmayalso significantlyimprove theirfinancial well-being. In contrast, knowledge of financial managementwas a strong predictor of the financial well-beingof Canadians in the FinanciallySecure group. This suggests that effortsto improve the financial well-being of individualswhoare alreadydoing quite well mightbe bestfocused on increasingtheirknowledge of how to plan spendingagainst income as well as theirknowledge of savingsproducts, consumerloans and credit cards. In this report, we have identifiedstrengthsand weaknessesinCanadians’financial well-beingaswell as how specificbehaviours,knowledge,experience andpsychological factors relate to financial well-being for differentgroups.This is an important step toward identifyingwaysto improve Canadians’ financial well-being. Next steps These findingsprovide valuable insightsthat may benefitpractitionersand other financial literacy stakeholderswhenit comes to designingand deliveringfinancial literacyinterventionsgoingforward. Our findingsleadto two general recommendationsfor practitioners. • In general, encourage active saving. Practitioners can do thisby focusing on interventionsthat seekto alter psychological factors, such as encouraging a long-termview, developingpositive attitudestoward savingand negative attitudestoward borrowing,and helpingindividualsfeel confidentin theirfinancial situations.Thisincludesconfidence inmanaging their moneyfrom day to day, planningfor theirfinancial futures,and making financial decisionsabout financial products and services.Settingup automatic savings mechanisms(such as an automatic transfer to a savingsaccount everymonth) and setting financial goalswouldalso be useful. • In general, discourage borrowing for daily expenses.Practitioners can do thisby focusing on interventionsthataim to increase financial confidence anddeveloppositive attitudestoward saving and negative attitudestoward borrowing. Other practical tips include askingan employerfor a salary advance, or askingcreditors for more time to pay bills.
  30. 30. 30 Our findingsalso leadto specificrecommendationsthat practitioners might want to considerfor Canadians in the identifiedgroups. • To help Canadians in the Struggling Somewhat and Struggling a Lot groups: Practitionerscan considerhow to helpindividualsidentifywaystoincrease savingsand avoid borrowing for daily expenses.Itwouldbe useful to helppeople inthisgroup feel more control over theirfinancial situations.One strategy could be to helpidentifyan appropriate goal and relatedresources. Practitionersmay alsoconsider findingwaysto helpindividualsgainexperiencesthatcan increase financial confidence through moneymanagement, planningfor the financial future and making decisionsabout financial products and services. Canadians in the Struggling a Lot group would alsobenefitfrom accessingfinancial education on these topics,for example through work or communityorganizations. • To help Canadians in the Struggling Somewhat group: Focus on not borrowing for daily expenses(see general recommendationsabove). • To help Canadians in the Somewhat Secure and Financially Secure groups: Ensure these Canadians know enoughabout savings products, consumer loans and credit cards to choose the right ones for theircircumstances. It is also advisable to ensure that Canadians are paying off theirmortgages and avoidingother forms of consumer debtthrough products such as credit cards and HELOCs. In general,Canadians in these groups shouldfocus on buildingassets through vehiclessuch as TFSAs and registeredretirementsavingsplans(RRSPs), and investingin registerededucationsavingsplans (RESPs) if theyhave childrenwho will likelybe interestedin post-secondaryeducation. We encourage practitionersand consumersalike to use some of the followingstrategiesand toolsto prioritize spending,developsavingshabitsand avoidrunning short of money: • make a budget • set up a fund for financial setbacks • set savingsand investmentgoals • make a plan to avoidusing creditwhen short of money • choose appropriate mortgage terms,bank accounts and credit cards • make a plan to pay down debt,includingoptionsto helppay downa mortgage more quickly
  31. 31. 31 Acknowledgements The Financial Consumer Agencyof Canada (FCAC) wouldlike to acknowledge the excellentworkof the Agency staff who worked on arranging the Financial Well-BeingSurveyinCanada, analyzing the data and reporting the results.In particular, we wouldlike to thank the followingmembersof the Research and PolicyTeam: Dr. Rebecca Kong,Dr. Mathieu Saindon,Steve Trites, Michael Olsonand Bruno Lévesque. FCAC wouldalso like to acknowledge the important contributionsof Dr. Jerry Buckland of Menno SimonsCollege,Dr. Jodi Letkiewiczof York University,Dr. Brenda Spotton Visanoof York University, Tamara Kellyand John Eisner of Credit CounsellingServicesof AtlanticCanada, Inc., Laurie Campbell and Adriana Molina of Credit Canada, and Michelle Pommellsof Credit CounsellingCanadafor providingcomments on sectionsof the report. Finally,we wouldlike to thank Prof. Elaine Kempsonand Dr. ChristianPoppe,who developedthe questionnaire andmodel of financial well-beingandprepared the data file for our analyses. References Allemand,M., Zimprich,D., & Hendriks,A. A. (2008). Age differencesinfive personalitydomainsacross the life span.Developmental Psychology,44, 758–770. De Bruijn, G. J., de Groot, R., van den Putte, B., & Rhodes, R. (2009). Conscientiousness,extroversion, and action control: comparing moderate and vigorousphysical activity. Journalof Sport and Exercise Psychology,31, 724–742. doi: 10.1123/jsep.31.6.724 Donnellan,M. B., & Lucas, R. E. (2008). Age differencesinthe big five across the life span: evidence from two national samples.Psychology and Aging,23, 558–566. doi:10.1037/a0012897 Donnelly,G., Iyer,R., & Howell,R.T. (2012). The Big Five personalitytraits,material values,and financial well-beingof self-describedmoneymanagers.Journalof Economic Psychology,33, 1129–1142. doi: 10.1016/j.joep.2012.08.001 Dunkel, C. S., & Weber, J. L. (2010). Using three levelsof personalitytopredict time perspective. Current Psychology,29, 95–103. doi:10.1007/s12144-010-9074-x Jensen-Campbell,L.A.,Knack, J. M., Waldrip, A. M., & Campbell,S. D. (2007). Do Big Five personality traits associated withself-control influence the regulationof anger and aggression?Journal of Research in Personality, 41, 403–424. doi: 10.1016/j.jrp.2006.05.001 Jostmann, N. B., & Koole,S. L. (2010). Dealingwith highdemands: The role of action versus state orientation.In R. H. Hoyle (Ed.), Handbookof personality and self-regulation (pp.332–352). West Sussex,UK: Blackwell PublishingLtd.doi: 10.1002/9781444318111.ch15
  32. 32. 32 Judge,T. A.,Erez, A., Bono, J. E., & Thoresen,C. J. (2002). Are measuresof self-esteem,neuroticism, locus of control, and generalizedself-efficacyindicatorsof a common core construct? Journal of Personality and Social Psychology,83, 693–710. doi:10.1037/0022-3514.83.3.693 Kuhl, J., & Fuhrmann, A. (1998). Decomposingself-regulationandself-control:the Volitional ComponentsInventory.In J. Heckhausen & C. S. Dweck (Eds.), Motivation and self-regulation across the life span (pp.15-49). New York, NY, US: Cambridge UniversityPress. doi:10.1017/cbo9780511527869.003 Lucas, R. E., & Donnellan,M. B. (2011). Personalitydevelopmentacrossthe life span:Longitudinal analyseswith a national sample from Germany. Journal of Personality and Social Psychology,101, 847–861. doi: 10.1037/a0024298 McCrae, R. R., Costa, P. T., de Lima, M. P., Simões, A., Ostendorf, F., Angleitner, A.,...& Chae, J. H. (1999). Age differencesinpersonalityacross the adultlife span: parallelsinfive cultures. Developmental Psychology,35, 466–477. doi:10.1037/0012-1649.35.2.466 McCrae, R. R., & John, O. P. (1992). An introduction to the Five-FactorModel and its applications. Journal of Personality, 60, 175–215. doi:10.1111/j.1467-6494.1992.tb00970.x Olson, K. R. (2005). Engagement and self-control:Superordinate dimensionsof BigFive traits. Personality and IndividualDifferences, 38, 1689–1700. doi: 10.1016/j.paid.2004.11.003 Penley,J.A.,& Tomaka, J. (2002). Associationsamong the Big Five,emotional responses,and coping withacute stress.Personality and Individual Differences, 32, 1215–1228. doi:10.1016/s0191- 8869(01)00087-3 Verplanken,B.,& Herabadi,A. (2001). Individual differencesinimpulse buyingtendency:Feelingand no thinking.European Journal of Personality,15, S71–S83. doi:10.1002/per.423 Whiteside, S.P., & Lynam, D. R. (2001). The five factor model and impulsivity:usingastructural model of personalityto understandimpulsivity.Personality and Individual Differences, 30, 669–689. doi: 10.1016/s0191-8869(00)00064-7 Zimbardo, P. G., & Boyd,J. N. (2015). Puttingtime inperspective:A valid, reliable individual-differences metric. In M. Stolarski,N. Fieulaine,&W. van Beek(Eds.) Time perspective: theory review, research and application (pp. 17-55). Cham, Switzerland:SpringerInternational Publishing.doi: 10.1007/978-3-319-07368-2_2

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