Backgrounder: Preliminary findings from Canada’s Financial Well-Being Survey
This backgrounder reports preliminary findings from a survey of financial well-being among Canadian adults.
FCAC’s Financial Well-Being Survey
Financial well-being is defined as the extent to which individuals are able to comfortably meet all of their financial commitments and needs currently while also having the financial resilience to maintain this in futureFootnote 1. The Financial Consumer Agency of Canada (FCAC) conducted its first national survey of financial well-being in Canada in 2018Footnote 2. This survey is based on a conceptual model that highlights the inter-relationship between four key determinants of financial well-being: (1) the social and economic environment, (2) financial knowledge and experience, (3) psychological factors, and (4) financially capable behaviour.
Preliminary analysis of the survey data indicates that two behaviours are particularly important in supporting the financial well-being of Canadians. First, our analysis indicates that Canadians who practice active savings behaviour have higher levels of financial resilience as well as higher levels of overall financial well-being. In other words, regardless of the amount of money someone makes, regular efforts to save for unexpected expenses and other future priorities appears to be the key to feeling and being in control of personal finances. Secondly, Canadians who often use credit to pay for daily expenses because they have run short of money have lower levels of financial well-being. While this behaviour is likely symptomatic of low levels of financial well-being, our analysis indicates that a person can substantially improve their financial resilience and financial well-being by implementing strategies to reduce the frequency of running out of money and of having to rely on credit to get by.
Key findings
The survey generates a score that represents how well Canadians are meeting their financial commitments, how comfortable they feel about their financial circumstances and how resilient they are towards their financial futures. Overall, the financial well-being score of Canadians is 65 out of 100. Scores were also calculated for a number of the components of financial well-being (e.g., meeting commitments, resilience for the future, etc.). Canada’s overall financial well-being score of 65 sits on the mid-range of well-being scores for similar countries that have recently conducted this same surveyFootnote 3.
| Component | Canada | Australia | New Zealand | Norway |
|---|---|---|---|---|
| Overall Financial Well-Being | 65 | 59 | 59 | 77 |
| Meeting Commitments | 81 | 71 | 72 | 91 |
| Resilience for the Future | 60 | 54 | 52 | 73 |
| Active Savings Behaviours | 68 | 63 | 60 | 75 |
| Not Borrowing for Daily Expenses | 84 | 83 | 82 | 93 |
| Informed Decision Making | 69 | 66 | 66 | 70 |
The overall financial well-being score represents a snapshot of the state of financial well-being in Canada. What underlies this score is the fact that generally Canadians are doing well when it comes to matters such as meeting their financial commitments, making informed financial decisions and understanding risks related to financial products. Other underlying factors indicate issues that may require further attention.
- more than half of Canadians in the sample do not regularly save money to cover unexpected expenses
- one in seven Canadians in the sample often uses credit to purchase basic necessities like food and for other expenses because they have run short of money
- nearly one in 10 Canadians in the sample report that they are impulsive in their spending, which leads to purchasing things they cannot afford
| Financial Behaviour | Very often/Often | Now and then | Seldom/Never |
|---|---|---|---|
| Saving to cover an unexpected expense | 47% | 29% | 24% |
| Use of credit to buy food or to pay for expenses because of running short of money | 14% | 16% | 70% |
| Financial Behaviour | Fits well/Fairly well | Neutral | Does not fit well/At all |
| I am impulsive and tend to buy things even when I can’t afford them | 8% | 14% | 78% |
Illustrating the importance of daily financial behaviours
Our preliminary analysis includes modeling to identify the behavioural factors that have the largest influence on financial well-being scores in CanadaFootnote 4. As described above, two key behaviours emerged: (1) active saving behaviour, and (2) borrowing to cover daily expenses when short of money.
The following examples are intended to illustrate the effect that these two behaviours have on financial well-being scores.
We start with an average Canadian adult who has a partner and two children with a household income between $59,000 and $89,000. Our analysis indicates that improving regular savings behaviours and reducing the frequency of relying on credit to cover daily expenses would increase this person’s financial well-being score by 30 points.
Figure 1: How financial behaviours influence financial well-being for an average family
Text version of figure 1
The infographic shows an average Canadian adult who has a partner and two children with a household income between $59,000 and $89,000. Our analysis indicates that improving regular savings behaviours and reducing the frequency of relying on credit to cover daily expenses leads to a financial well-being score of 76. Not practicing regular savings behaviours and frequently borrowing for daily expenses leads to a score of 46 which is 30 points lower.
Similarly, these two behaviours have a large impact on the financial well-being of an average woman under 30 years of age. If we consider a woman with an income between $33,000 and $58,000, her financial well-being score would increase by 22 points by improving her savings behaviours and reducing the frequency of relying on credit to cover daily expenses.
Figure 2: How financial behaviours influence financial well-being for women under 30 years of age
Text version of figure 2
The infographic shows an average woman under 30 years of age with an income between $33,000 and $58,000. Our analysis indicates that improving regular savings behaviours and reducing the frequency of relying on credit to cover daily expenses leads to a financial well-being score of 69. Not practicing regular savings behaviours and frequently borrowing for daily expenses leads to a score of 47 which is 22 points lower.
Significance of the findings
The preliminary results of the financial well-being study provide evidence about the importance of the relationship between active saving behaviours and financial well-being in Canada. It is hypothesized that active saving behaviours are key because they help Canadians to prepare for unexpected expenses and other future priorities, which in turn reduces stress associated with financial unknowns. These findings suggest that active saving behaviours may also provide Canadians with a buffer to avoid relying on credit to get by when they are running short of money. Interestingly, in other jurisdictions where this survey has been fielded to date (i.e., Norway, Australia, New Zealand), people who practice active saving behaviours also have higher levels of financial resilience as well as higher levels of overall financial well-being.
Over the coming months, FCAC will continue to analyze the financial well-being dataset in order to better understand the factors that are associated with financial well-being and how these vary across different demographic groups of Canadians.
These preliminary findings provide valuable insights, which may benefit practitioners and other financial literacy stakeholders, in the design and delivery of financial literacy interventions going forward. Those findings indeed point towards encouraging consumers to use some of the following strategies and tools to prioritize spending, assist with development of savings habits and to avoid running short of money:
- make a budget
- set up an emergency fund
- set savings goals
- make a plan to avoid using credit when short of money
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