Financial Resilience Institute
Jan 18 · 5 mins
Canadians Face Growing Financial Vulnerability
October 2023 Seymour Financial Resilience Index ® highlights Canada mean financial resilience score has dropped to 50.78 with challenges in Quebec and for variable-rate mortgage holders
VANCOUVER, B.C. Jan 18 2024 – Financial Resilience Institute, the leading authority on financial resilience and well-being in Canada, announces results from its ninth Seymour Financial Resilience Index ® release. The October 2023 Index reveals an increase in financial vulnerability for Canadians, particularly for variable interest rate mortgage holders, Québécois, British Columbia, and other provinces. The data, collected in October 2023, paints a concerning picture of the financial resilience and financial health of many Canadian households, especially in light of the challenging economic landscape.
The Institute’s CEO and Founder Eloise Duncan stated “I’m concerned about the growing financial vulnerability of Canadians, especially those with variable interest rate mortgages and other vulnerable households. The Canada mean score of 50.78 based on the October 2023 Seymour Financial Resilience Index ® underscores the financial challenges faced by many arising from high interest rates, the cost-of-living crisis and challenging economic environment. Our data signals how important it is for Policymakers, Financial Institutions, Employers and others to support their stakeholders’ financial well-being, with 2024 expected to be a tough year, particularly until interest rates come down.”
The October 2023 Seymour Financial Resilience Index ® 1 indicates a decline in Canadians’ financial resilience. The Canada mean financial resilience score dropped from 52.44 to 50.78, with this decrease statistically significant. This is 1.67 points lower than in June 2023 and 5 points lower than during the pandemic in June 2021 2. Notably, variable interest rate mortgage holders and financially challenged households, such as single parents and those struggling with their debt face increased vulnerability due to the high cost of living and borrowing costs. The peer-reviewed Index is based on the Financial Well-Being study with over 5000 adult Canadians from a representative sample of the population by household income, age, province and gender, with the October Index release report here.
- Vulnerability Spreads Across Demographics: A significant 80% of the Canadian population (19.96 million adults) falls outside the ‘Financially Resilient’ segment, with 18.7% scored ‘Extremely Vulnerable.’ Financial insecurity transcends income levels, with 37% of Canadians having negative or zero household savings and 24% having a liquid savings buffer of three weeks or less.
- Spending and Debt Management: While households are tightening their belts (68% report reduced non-essential expenses), many are relying on credit with 43% of households having drawn down on their savings to service their debt and 25.4% reporting their debt levels unmanageable. These trends are concerning, as they indicate a lack of a financial buffer and potential future difficulties 34.
- Housing Affordability Crisis: Housing affordability remains a major concern, impacting 53% of Canadians overall and 79% of ‘Extremely Vulnerable’ households. Rising borrowing costs are expected to drive a 30% increase in monthly mortgage payments by the end of 2024, further exacerbating the problem 5.
- Variable-Rate Mortgage Holders: These individuals face particularly challenging circumstances. Their mean financial resilience score dropped from 51.07 in June to 49.65 in October. A concerning 88% find rising interest rates problematic, and 64% report high levels of financial stress over their current and future financial obligations. This group requires close attention and support, as they are particularly vulnerable to economic shocks.
- Economic Impact: In Canada, consumption stagnated for the second quarter in a row in 2023, with a 4.4% annualized contraction in GDP per capita, as reported by the National Bank of Canada 6. CFIB’s December 2023 Business Barometer® showed a long-term index of 47.0 and a short-term optimism index of 39.8, both at extremely low levels. Business owners are more concerned about domestic demand than labor shortages. As of October 2023, Canadians that were facing work-related barriers had a mean financial resilience score of 36.6, compared to 60.22 for those without barriers.
- Impacts for Canadians facing economic inclusion barriers: Mean financial resilience scores are lower for Canadians facing barriers impacting their ability to work to earn money, with a notable difference between those facing barriers (36.6) and those not facing barriers (60.22) as of October 2023.
Beyond the Numbers: Context and Comparisons
It’s crucial to view this data in the context of the broader economic landscape. Canada’s economy is facing challenges such as high interest rates, a high cost of living and inflation and a potential recession. These factors are contributing to the increased financial vulnerability observed in the October 2023 report.
Furthermore, comparing the findings across different demographics reveals concerning disparities. Single parents, Indigenous Canadians, low-income Canadians and individuals facing systemic barriers consistently score lower on the Institute’s Financial Resilience Index model, indicating a need for targeted support and resources for these groups.
Looking Ahead: Action and Advocacy
The Financial Resilience Institute emphasizes the urgency of addressing these growing financial vulnerabilities. They advocate for a multi-pronged approach that includes:
- Financial education and empowerment: Empowering Canadians with the knowledge and skills to manage their finances effectively and foster healthy financial behaviours.
- Policy changes: Implementing policies that support financial security and financial resilience, such as affordable housing initiatives and debt relief programs.
- Community-based support: Providing resources and services to assist vulnerable individuals and families.
The Financial Resilience Institute’s ninth Seymour Financial Resilience Index ® provides a valuable snapshot of the current state of financial well-being in Canada. By understanding the scope and nature of the challenges Canadians face, we can take collective action to build a more resilient and financially secure future for all.
About Financial Resilience Institute
Financial Resilience Institute is a non-profit organization dedicated to improving the financial resilience and well-being of Canadians and global citizens. It is the leading independent authority on financial resilience and financial well-being in Canada.
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1 The Seymour Financial Resilience Index ® measures financial resilience: i.e. a household’s ability to get through financial hardship, stressors and shocks as a result of unplanned life events. With a pre-pandemic baseline of February 2020, the Index measures and tracks household financial resilience across nine behavioural, sentiment and resilience indicators at the national, provincial and individual household levels in Canada. Extremely Vulnerable households have a financial resilience score of 0 to 30;’ Financially Vulnerable’ a score of 30.01 to 50;’ Approaching Resilience’ a score of 50.01 and ‘Financially Resilient’ a score of 70.01 to 100. The Index is complemented with data from the Financial Well-Being studies instrument, offering longitudinal measurement and tracking of Canadians’ financial well-being at various levels.
2 See joint report published by Statistics Canada and Seymour Consulting (prior to becoming Financial
Resilience Institute) on the ‘Financial Resilience and Financial Well-Being of Canadians during the
COVID-19 Pandemic (September 2021).
3Source: National Bank of Canada December 2023/ January 2024 Monthly Economic Monitor, authored by Matthieu Arseneau, Jocelyn Paquet and Darren King. As outlined in this report, in the US, consumers are beginning to show signs of weakness due to the increasing costs of servicing non-mortgage debt with many Americans struggling to pay off their car loans and credit cards.
4Despite high borrowing costs, TD Economics puts forward that a relatively more resilient job market and largely unspent excess deposits should provide enough support for an average Canadian family to manage an increased debt servicing cost. That said, by the Bank of Canada’s estimates, roughly 50% of mortgages that were initiated before interest rate hikes began will face higher rates by the end of 2023, and in some cases, this will increase their monthly payments substantially, weighing on discretionary spending. With interest rates likely to remain higher for longer, families will need to devote more of their budgets towards debt payments, with increased mortgage payments expected to have reduced real consumer spending. Source: Riding Our the Mortgage Dies is a ‘Mission Possible’ for Canadian Households, Maria Solovieva, CFA Economist, TD Economics, December 13, 2023.
5 TD Bank Economics expects that elevated mortgage payments will create an enduring drag on consumption and broader economic growth. Today, many households are needing to stretch further to cover mortgage payments at rates 1.5-3.5 percentage points higher than what they signed up for originally, and for those who haven’t locked in their rates, the rate shock is even higher. Source: Riding the Mortgage Dies is a ‘Mission Possible’ for Canadian Households, Maria Solovieva, CFA Economist, TD Economics, December 13, 2023.
6Monthly momentum with GDP growth in September and October (preliminary data) means that Canada can avoid a second consecutive contraction in the fourth quarter of 2024. Source: National Bank of Canada December 2023/ January 2024 Monthly Economic Monitor, authored by Matthieu Arseneau, Jocelyn Paquet and Darren King.
Seymour Financial Resilience Index® is a registered trademark used under license by the Financial Resilience Society.