by Larry Crandall, LL.B., LIT, CIRP, Grant Thornton
Canadians, both employed and unemployed, are carrying record levels of debt. For those who are employed and struggling financially, debt can not only impact their livelihood at home, but at work as well. To help you better understand the importance of employee financial wellness, we will briefly discuss debt levels of Canadians, how debt impacts employees and their overall wellness, and what you as an employer can do to help.
Financial Landscape of Canada
Canadian households are carrying a lot of debt. As of 2020 Q3, the household debt-to-income ratio was 170.7%. That means that for every $1.00 that a Canadian household earns, it owes $1.71 in debt. Have Canadians always carried this much debt? No. In 1980, our debt-to-income ratio was only 66%. So, what’s changed?
- Debt is cheaper than ever. In the 1980s, the bank interest rate was approximately 13%. Today, interest rates are almost zero and it is easier for people to afford the monthly payments on debt.
- As a society we are hesitant to talk about money. On top of that, it is not common practice to teach financial literacy in schools. Leaving young Canadians unprepared for any future financial responsibilities.
- We’ve normalized our relationship with debt. Canadians now accept that debt is a regular part of life. This is dangerous when coupled with the lavish lifestyles we now see on social media, and the “fear of missing out” (FOMO) that comes with them.
As a Licensed Insolvency Trustee, I have seen firsthand how Canadian household debt has increased reflected in our insolvency statistics. Since 1987, we have seen Canada’s population increase by approximately 40%. At the same time, we have seen the number of Canadians who file either a bankruptcy or proposal to creditors increase ten times that amount (400%). In 2019 alone, approximately 137,000 Canadians filed a bankruptcy or proposal.
What is the impact of this debt?
The impact of debt to Canadians is considerable:
- 61% of employees cited finances as their #1 stressor.
- 46% of employees survey said their financial stress impacted their performance at work.
- 45% find their current debt load overwhelming.
- 50% of Canadians live pay cheque to pay cheque.
- 48% would find it hard to meet financial obligations if their pay was delayed 1 week.
- Lost productivity due to employee financial stress cost the Canadian economy $1.6 billion in 2019.
On an individual level, the stress of carrying overwhelming debt can cause employees to exhibit the following in the workplace:
- Irritability
- Lateness
- Absenteeism (or presenteeism, which is when you are at work when you should be home sick)
- Stress leaves
- Higher claims on benefit plans
- Turn over
- Decreased morale
- Avoidable mistakes
Additionally, carrying too much debt can also impact our overall health. People with high debt levels are much more likely to suffer from anxiety, depression, migraines, heart attacks, muscle tension, or ulcers.
What can employers do to help?
It should be obvious that financial difficulty can impact employees, and the workplace. So, what can you as an employer do to help?
The most important thing that you can do to help your employees is to ensure that your corporate culture is supportive. Ways to incorporate this into your culture could be by:
- Letting your people know that they are not alone, and that help is available;
- Promoting your Employee Assistance Program (EAP), as many can help with particular debt situations (If you do not presently have an EAP in place, you may want to consider getting one);
- Inviting financial advisers into the workplace to discuss financial topics;
- Being flexible. If an employee is taking steps to help resolve debt, they may need to make time in their schedules for professional appointments; and
- If you suspect that one of your people is suffering from financial hardship, be proactive and suggest that they consider seeking help.
In addition to the above, you may also consider setting up a workplace savings plan, either as part of a stand-alone account, or with a current service provider.
What options are open to help someone resolve their debt?
The good news is that there are options available to help Canadians with their debt. People will usually rely on (a) proposal to creditors, (b) credit counselling, (c) debt consolidation or (d) bankruptcy.
Which is the right choice? That depends on a lot of factors. At a minimum, you need to consider your household income, ability to make payments to your creditors, the impact on your credit, and the impact on your assets.
A Licensed Insolvency Trustee (LIT) can help navigate these options and provide customized advice that is tailored for your situation. LITs are licensed by the federal government and will either help you by filing a proposal, bankruptcy or by referring you to another financial professional if a proposal or bankruptcy is not the right choice.
Larry Crandall is a Licensed Insolvency Trustee and Partner with Grant Thornton. Larry helps people and businesses throughout New Brunswick with financial difficulties, in both official languages. Larry is also a member of CAIRP and the Law Society of New Brunswick,
Christopher McDougall is a Tax Manager with Grant Thornton. Chris holds a CPA Designation and is a graduate of the University of New Brunswick Bachelor of Business Administration Program. Christopher focuses on assisting clients with both corporate and personal domestic tax planning and compliance.