By Rob Carrick
Jan. 14, 2021
News headlines about the pandemic tell us that the best money move early in 2021 is to improve your financial resilience.
Better times are ahead, but jobs and incomes are still at risk in an economy that will have to remain locked down to some extent for a while longer. Stocks and house prices may continue to rise, and cash will pile up in the savings accounts of people who aren’t spending what they normally would. But if you measure financial health by the ability to withstand financial shocks, then you get a more sobering take on things.
In rough terms, there’s a 60-40 split between Canadians who are either financial resilient or approaching resilience and those who are financially vulnerable or extremely vulnerable.
This breakdown comes from data compiled by Seymour Management Consulting, which has created its own index of financial resilience, the Seymour Financial Resilience Index, and has been applying it through the pandemic. A few key findings:
- Contrary to what you might expect, well-off people have a significant presence among the financially vulnerable and there are some low-income people who have managed to stay financially resilient.
- Certain groups – women, single-parent families and disabled people – are particularly vulnerable in a financial sense.
- There’s been a lot of movement in the pandemic – people losing resilience, and others improving their situation.
The most recent data from Seymour Consulting comes from an October survey of 3,016 people and it shows that the average financial resilience score for the country was 54.5 out of 100, which compares with 49.5 from the pre-COVID-19 baseline in February. But the overall improvement masks this underlying trend: Financially resilient people are on the whole doing better, while financially vulnerable people are slipping.
“There is a growing financial resilience gap, and that gap is widening,” said Eloise Duncan, the Vancouver-based chief executive of Seymour Consulting. “What this highlights for us is that more targeted support is going to be needed for those more vulnerable households, both from the government perspective and the financial institutions, if things continue to unfold as they are right now.”
Seymour Consulting uses nine indicators to rank people as financially resilient or vulnerable, including changes in household finances over the previous 12 months, stress levels about money, debt levels, liquid savings, credit scores, and ability to weather unexpected expenses and save for long-term goals. Resilience means a household’s ability to get through financial hardship, stresses and shocks as a result of unplanned life events, and this is measured at the national, provincial and individual household level.
The latest Seymour numbers suggest that 28 per cent of people are financially resilient and another 31 per cent are approaching resilience. Close to one quarter are financially vulnerable and almost 17 per cent were extremely vulnerable.
Among the extremely vulnerable in October, 11 per cent had incomes of $100,000 and higher. “You could own a home but be overleveraged on that home and a high level of financial commitments,” Ms. Duncan said of the precarious high earner. “While you look good on paper, you could have a minimal liquid savings buffer.”
Among those classified as financially resilient, 20 per cent had incomes below $50,000. Ms. Duncan said these financially resilient lower-income people are juggling spending, saving and debt well enough that they have at least a little money put aside and are not stressed about meeting their current and future financial obligations.
Lately, there’s been a fair bit of churn in the tally of financially resilient and vulnerable people. Seymour consulting did a deep dive on 431 households between June and October and found 23 per cent of approaching-resilience households slipped a notch to financially vulnerable.
“A good news story is that 18.3 per cent of extremely vulnerable Canadians moved up to financially vulnerable in the same three-month period,” Ms. Duncan said. “Achieving financial resilience is possible, regardless of income.”
Yet she also noted that some groups face systemic challenges in building resiliency. People who are not working as a result of a disability had an average resilience index score of 33.1 in October, and single-parent families had a score of 43.3. Again, the national average resilience score was 54.5 in October.
Women had an average resilience score of 51.7 in October, a decline from 53.8 in June. Ms. Duncan said women have lost more hours of work in the pandemic than men and been harder hit by job losses.
Neither health-wise or financially are we near the end of the pandemic. Regardless of your income level, build your resilience where possible.
This Globe and Mail article was legally licensed by AdvisorStream.