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Research symposium - Growing household financial instability: Is income volatility the hidden culpri

22 June 2018
Canadians are experiencing unprecedented levels of household debt, while failing to save adequately for both short term emergencies and their retirement. Consider these facts:
 
  • On average, Canadians owe $1.71 for every dollar of annual income
  • Our total household debt is greater than our GDP (101 per cent) and the highest in the OECD
  • The International Bank for Settlements and OECD warn that Canada is at risk of a debt crisis driven by excessive household debt
  • Canada’s household saving rate is 2.6 per cent of annual income versus 19.9 per cent in 1982
  • 48 per cent of Canadians live pay cheque to pay cheque
  • Over 25 per cent of Canadians cannot manage an emergency expense of $2,000 within 30 days.
These trends continue to worsen. Experts have identified an overheated housing market as a key contributor to the problem, but is there more to the story? Will measures to dampen housing prices be enough to reverse these trends? We don’t believe they will.
 
Strong evidence from the United States and emerging research in Canada suggest there is another structural driver at work – income volatility. With the rise of precarious work, more households are experiencing unstable and unpredictable monthly income flows that make it increasingly difficult to budget, plan financially, and save. Unpredictable dips in income, combined with fixed monthly expenses and periodic expense shocks, mean that more and more households are borrowing to make ends meet, as illustrated by rising rates of payday loan use by Canadians of all income levels.
 
Recent research undertaken by the TD Bank Group shows that 10 million or 37 per cent of Canadian adults are affected by moderate to high income volatility and demonstrate significantly lower levels of financial health.
 
Policy research symposium – March 9, 2018
 
On March 9, 2018, Prosper Canada and Investment Industry Regulatory Organization of Canada (IIROC) co-hosted a policy research symposium featuring leading U.S. and Canadian experts, who shared their work on income volatility, its impact on household finances, and what we can do about it.
 
Research leaders from the St. Louis Federal Reserve, JPMorgan Chase Institute, Center for Financial Services Innovation, and Aspen Institute shared their research findings as well as a cross-sector solutions framework developed to tackle this issue in the U.S. The symposium also featured the latest Canadian research from Statistics Canada, TD, and Capital One, as well as work that is already underway on made-in-Canada solutions.
 
View video presentations:

  • Ray Boshara, Director, St. Louis Federal Reserve Center for Household Financial Stability
Income volatility: What banking data can tell us, if we ask
  • Fiona Grieg, Executive Director, JPMorgan Chase Institute
  • Rob Levy, Vice President, Financial Health, Center for Financial Services Innovation
  • Andrew J. Heisz, Assistant Director, Income Statistics, Statistics Canada
  • Derek Burleton, Deputy Chief Economist, TD Bank Group
  • Patrick Ens, Vice President, Product and Marketing Strategy, Capital One
  • Katherine Scott, Vice President, Policy and Research, Canadian Council on Social Development
Moderated panel discussion followed by table discussion:
  • Catherine Van Rompaey, Director, National Economic Accounts Division, Statistics Canada
  • Dr. Jennifer Robson, Assistant Professor, Carleton University
  • David Mitchell, Senior Program Manager, Financial Security Program, Aspen Institute
  • Rob Levy, Vice President, Financial Health, Center for Financial Services Innovation
  • Sunil Johal, Policy Director, Mowat Centre
  • Jonathan Weisstub, Founder, Common Wealth
What’s next:
 
We will be releasing a report next month capturing what we know about income volatility, its impact on households and potential solutions. Subscribe to our mailing list to stay informed.