Half of Canadians are Living Paycheque to Paycheque: Survey

Are you guilty of living paycheque to paycheque? You’re not alone. More than half of employees (51 per cent) would find it difficult to meet their financial obligations if their paycheque were delayed by a single week, according to a recent survey by the Canadian Payroll Association (CPA). That figure is up 2 per cent from an average of 49 per cent in the last three years. With home prices reaching the stratosphere in many cities and households taking on record debt levels, this is an especially worrisome trend.

Two-Thirds of Millennials Living Paycheque to Paycheque

Millennials, those aged 18 to 29, are having an even tougher time managing debt. Nearly two-thirds (63 per cent) said they live paycheque to paycheque. With a job for life a thing of the past, young adults could find themselves in serious trouble if their position is restructured and they can’t find a job quickly.

Are you prepared for a costly financial emergency like a leaky roof? A lot of Canadians aren’t. Slightly more than a quarter (26 per cent) said they could not come up with $2,000 over the next month if an emergency expense arose.

Savings Taking a Backseat

With record low interest rates, Canadians don’t seem to be in any hurry to save. Savings have taken a backset to spending with more than half saving just 5 per cent – or less – of their paycheque, compared to the 10 per cent recommended by most financial planners.

With Canadians saving less and company pension plans no longer plentiful, Canadians are being forced to delay their retirement plans. 79 per cent expect to delay their retirement until age 60 or older – that’s up 9 per cent from 70 per cent in the last three years.

“The number one reason cited for retiring later in life is that employees are not able to save enough money,” the association said. There appears to be a mismatch in terms of retirement goals and savings. While employees continue to raise the bar in terms of what they think they will need to retire comfortably, savings rates continue to plummet.

Only 18% of respondents felt that savings under $500,000 would be sufficient in retirement, compared to 21 per cent in the last three years. Meanwhile, over two-thirds (68 per cent) now think savings of between $500,000 and $2 million will be required, up from 60 per cent.

“Yet despite upward adjustments in perceptions of what constitutes an adequate nest egg, the vast majority of employees are nowhere near reaching their goals — 75% say they have put aside less than a quarter of what they will need in retirement up, from an average of 73% over the past three years,” the association said.

“And even among employees closer to retirement (50 and older), a disturbing 47% are still less than a quarter of the way there, indicating a significant retirement savings gap,” added CPA president and CEO Patrick Culhane.

Living Paycheque to Paycheque? Take a Proactive Approach

If you’re facing financial troubles, it’s best to take a proactive approach instead of ignoring the problem. Start with the basics and establish good habits. Here are some basic tips to get started:

• Emergency Fund: Instead of relying on your credit card in an emergency, you should set money aside for a rainy day. A good rule of thumb is to save three to six months’ living expenses in a high interest savings account.
• Budgeting: One of the most basic rules of personal finance is budgeting. If you don’t know how much money you’re earning and spending, it’s hard to figure out where you can cut back. Create a budget and actively monitor your spending on your credit card statement.
• Get a Part-Time Job: Sometimes cutting back on expenses isn’t enough to fix your debt situation. If you’re feeling overwhelmed by your monthly debt payments, a part-time job can be a great way to bring in some extra cash. Even a few hours a week can make a difference.

The Bottom Line

The low interest rate environment has made it tempting to live on credit. While it often makes sense to take on good debt like a mortgage to buy a home, you should try to avoid bad debt. Debt like your credit card and line of credit can take years to pay off and cost thousands in interest if you only make the minimum payment.