The financial wellbeing of Canadians has taken a substantial hit over the past year, with the number of individuals living paycheque to paycheque ballooning 26%.

New research from the National Payroll Institute and the Financial Wellness Lab of Canada found that the financial gains experienced by Canadians during pandemic lockdowns are "quickly disappearing -- especially for those who have not adopted positive financial habits."

In an analysis of the National Payroll Institute's annual survey of working Canadians, the Financial Wellness Lab clustered Canadians into three categories: financially comfortable, coping, or stressed. In the 2021 version of the survey, the financially comfortable cluster was a sizable 46%. But in 2022, that number fell by 10%, with the financially coping category growing by 8% and the financially stressed increasing by 2%.

The analysis also revealed that the gap between the coping and stressed clusters has widened, something the National Payroll Institute says is a sign that there is a growing level of distress among Canadians who are struggling the most financially.

"While the growth of the coping and stressed clusters shows that more Canadians are struggling financially as we emerge from the pandemic economy, the data indicates that things are likely to become even more difficult for more people in the near future," said Peter Tzanetakis, President of the National Payroll Institute. "Savings and spending habits, along with reliance on debt, have consistently determined the cluster an individual belongs to, and each one is moving in the wrong direction. With rising interest rates and persistent inflation still an issue, it's likely that this trend will continue."

And it's not that financially stressed Canadians are all low-income earners. In fact, the research revealed that 41% of financially stressed workers had household incomes of more than $100,000. So what's to blame? Well, according to the report, poor financial habits related to saving, spending, and debt are playing a big part.

"The number of employed Canadians spending more than their net pay is at the highest level ever reported in the survey (11%)," the report reads. "Unsurprisingly, those in the stressed cluster are living closest to their limits with 91% in that cluster spending all or more than their net pay (up from 82% in 2021)."

This translates to Canadian workers are saving less than they were a year ago. The number of workers saving just 1-5% of their pay jumped from 27% in 2021 to 34% in 2022. When looking at financially stressed individuals, that number jumps to 84% -- an 8% increase from last year.

Debt levels are also on the rise, with the number of Canadians with credit card debt jumping from 29% in 2021 to a staggering 42% this year. The increase was steepest among the financially stressed cluster, with the report noting that 56% of financially stressed workers say they feel overwhelmed by their debt.

Of course Canada's sky-high inflation can't be ignored, with 85% of Canadian workers saying that inflation and increasing living costs were their top economic concerns. Basics like groceries and transportation are significantly more expensive than they were one year ago, and 18% of workers say they're now using debt to cover essentials like food, clothing, and shelter. Among the financially stressed, that number jumps to 61%.

"Many Canadians feel stretched thin and that the ability to change their financial position remains out of their control," said Matt Davidson, Dean of Science at Western University and Director of the Financial Wellness Lab of Canada. "The research however, demonstrates that moving to a state of improved financial well-being is not only possible, it's probable if you undertake certain measures that can secure your individual financial position."

Personal Finance