By Monica Gutschi
Of DOW JONES NEWSWIRES
TORONTO (Dow Jones)–The majority of Canadians continue to live paycheck to paycheck, are saving very little, and are worried about paying their debt.
A recent survey by the Canadian Payroll Association found that 59% of those polled say they would be in financial difficulty if their pay was delayed by a week, highlighting the precarious situation most Canadian families are in as the country’s economy slowly pulls itself out of recession.
“I frankly feel that people are more cautious,” says Patrick Culhane, chief executive of the organization that represents payroll executives. “I think there’s a higher awareness of their financial situation.”
The survey’s results are remarkably similar to those from last year’s inaugural poll. The number of people highly dependent on their paychecks has not changed during the year. Not surprisingly, younger workers just starting out in their careers or jobs have the greatest trouble meeting their expenses, mainly because their salaries are generally lower and they often have student debt to pay. About 65% of those 18-34 say it would be hard for them to pay their bills if they missed even one paycheck. The situation is most precarious, however, for single parents, with 76% saying they would have some trouble making ends meet.
The survey also found that Canadians continue to struggle to save money. Almost half, or 47%, are saving 5% or less of their earnings. Most financial experts suggest a better yardstick is 10%, or a cash hoard of at least three months’ worth of earnings. More people, however, are saving 16% or more of their pay, with 18% of Canadians doing so, compared with 13% last year.
The overwhelming majority of respondents–81%–said their first priority if they won a C$1 million lottery would be to pay down their debt. That, Culhane says, points to the concern many Canadians have about the potential for higher interest rates.
“This is an indicator that people have debt and are worried about it,” Culhane said. “They’re concerned about the amount of debt they have and the ability to pay that debt if interest rates rise.”
The Vanier Institute of the Family reported earlier this year that the average Canadian owes C$96,000. And the Certified General Accountants Association reported that household debt in Canada reached C$1.41 trillion in December 2009.
Culhane says the results of the CPA survey don’t necessarily mean Canadians are in bad financial shape, as they may have been last year when the economy was contracting and employers were shedding jobs. Rather, he says, with greater media attention being paid to financial management, retirement planning and rising interest rates, people have become more aware of where they stand on the issues.
The Bank of Canada has raised its benchmark interest rates three times this year to 1%, the only central bank of a G7 nation to do so. While rates remain near 30-year lows, most observers believe they could rise rapidly once the economy begins to show firmer signs of revival.
However, Culhane was surprised to find rising pessimism among those polled. While 67% of those surveyed last year thought the country’s economy would improve over the next 12 months, this year only 59% were optimistic about the outlook. “This is another indication of people’s awareness of the economic environment around them,” he said.
Nearly 2,800 people from across Canada were interviewed in the second annual survey by the CPA.
Among its other findings, the survey found that 62% of respondents expect a salary increase over the next 12 months, but only 7% believe their raise will beat the increased cost of living.
-By Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com
