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We need to act on income volatility now

20 June 2017
Canada’s elected leaders have taken to referring to modest- and middle-income households as struggling Canadians, but they are often short on details when it comes to who is struggling and why.
Community organizations have been aware for some time of a sea change in the financial lives of Canadians – more people cobbling together an income from multiple part-time and temporary jobs, more families working hard but having to borrow for food and rent, and more predatory fringe financial services proliferating in neighbourhoods.
On average, Canadian households now owe $1.67 for every dollar of income and save a meagre 5.8 per cent of our incomes, far below the threshold for financial stability and health.
So what is actually happening here? 
U.S. research tells us that the rise in precarious work and resulting income volatility are likely driving these changes, but Canadian research on this question has been conspicuously absent – until now.
On May 17th, TD released the results of an in-depth national survey that explored the nature and extent of income volatility and its impacts on the financial health of Canadians.  
The story it tells is sobering.
Almost forty per cent of adult Canadians (over 10 million people) experienced moderate to high levels of income volatility over the past year. Approximately 3.3 million of these Canadians actually saw their monthly income fluctuate by 25 per cent or more. 
The survey found that those affected were much more likely to experience poor overall financial health and to struggle, in particular, to plan and save. They were more likely to experience financial stress and to see themselves falling behind financially, and much less likely to feel any confidence in their financial future.
While some see financial education as the solution to this problem, it’s no substitute for a stable and adequate income. Traditional financial education approaches to budgeting, planning and saving are also of limited helpfulness when families cannot predict their income from one month to the next.  
Financial education can help Canadians develop knowledge and skills to more effectively manage their money, but we need to adapt it to the new realities Canadians are facing and see it as an important complement to, rather than substitute for, more systemic solutions aimed at building household financial stability and well-being.
We need to redesign employment and income supports for today’s labour market, modernize our employment standards, and ensure that all Canadians have access to safe and affordable financial products and services that meet their needs. 
TD’s survey findings suggest that income volatility may be the third leg of the ‘income stool’ in Canada, and should be seen – like income poverty and income inequality – as a key determinant of household and national financial health.  
The federal government should start working immediately with key stakeholders to develop national measures and longitudinal research, as well as more targeted studies, to investigate this problem, because we need to get very serious, quickly, about finding solutions. 
TD describes income volatility’s impact on Canadians as pervasive and profound. When these words are used to describe financial instability, stress, and pessimism on a national scale, students of history sit up and take notice. Why? Because these are the conditions typically associated with declining national social cohesion and rising political instability and conflict. 
Some solutions are complex and will take time and careful work. We should not rush these, but neither should we postpone them any longer. Other solutions are ready at hand. Free community tax clinics, benefit screening and assistance, and financial help centres in low and modest income communities have all been proven to improve financial outcomes and reduce financial stress. They also serve the Canadians most at risk of income volatility and who feel its effects most sharply.
Financial institutions can also play a major role by adopting innovative customer financial health metrics and using these to develop new strategies, products and services that improve customer financial health and their bottom line. 
Canadians understand that we are all in this great magic canoe we call Canada together, but that we are in danger of running aground. We need policy makers, financial institutions, employers and community leaders to get paddling – faster and together – to steer us to safer water and a future where every Canadian has the chance to prosper.

By: Elizabeth Mulholland, CEO, Prosper Canada