Financial band aids are nice, cures are better.
Canadians are suffering from an acute affordability crisis and governments are taking welcome steps to relieve some of their immediate financial pain.
Don’t think for a minute though that these financial band aids are actual cures for our real problem – the woeful state of household financial health in Canada.
According to a recent J.D. Power study, 59 per cent of retail bank customers in Canada are financially unhealthy.
Canadians currently save 8.1 per cent of their annual income, but savings are concentrated in higher income households and 51 per cent of employees report living paycheque to paycheque.
Why are we so financially sick?
The answers are complex, but here are some of the likely factors at play.
Decades of rising housing and post-secondary education costs have increased the burden of mortgage and student loan debt. The rise of non-standard work has left 37 per cent of working age Canadians without a steady paycheque, making it hard for them to budget, plan financially and save.
This is causing them to borrow more to make ends meet.
A profusion of financial products and services have made financial decisions more complex and high-cost, high-risk, financial products undermine our financial health.
Many households cannot afford professional advice to navigate this landscape successfully and community financial help services are effective but not widely available.
While income supports for seniors and families with children lift many out of poverty, one in five Canadians with low incomes do not tax file and consequently, miss out on their benefits.
Social assistance benefits for single working-age adults and people with disabilities have eroded so badly that some fall as low as 66 per cent below the poverty line.
So, how can we rebuild Canadians’ financial health?
Like any doctor, we should start by treating those who are in most urgent need.
Job one is ensuring people have enough income to cover basic needs by turning minimum wages into liveable wages, boosting provincial social assistance rates and indexing both to inflation.
Let’s also make sure everyone has quality financial help and advice when they need it by investing nationally in community financial help services that build financial capability, health and resilience, as Australia, the UK and New Zealand have done.
We can prevent financial gouging by dropping the maximum allowable annualized interest rate from 60 per cent to 30 per cent, eliminating the interest rate exemption for payday loans and tightening provincial regulation of other high-cost, high-risk, financial products and practices.
Now is also good time to stop paying wealthy people to save more and instead provide a federal matching grant to encourage low/moderate-income Canadians to save in Tax Free Savings Accounts (TFSAs), building a buffer against future hardship.
And finally, let’s reform education financing to reduce the debt burden on struggling households.
Will these remedies cure all our financial woes? No.
But they are sure better than the box of band aids currently on offer.
Elizabeth Mulholland is the CEO of Prosper Canada.