Financial resilience on autopilot

Should savings be taken right off your paycheque? Researchers at Western University think so

A COUPLE OF weeks ago we wrote about the growing feeling among some workers that their employer should be a place they can turn to for financial wellness benefits — things like student loan repayment, retirement planning and loan programs.

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Last week, researchers from Canada’s Financial Wellness Lab at Western University fleshed this out further, with a white paper arguing that Canadian employers should look at something called an emergency savings account, built directly into payroll, to help employees out of financial jams.

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“We propose a two-tiered rainy day fund — a combination of a modest liquidity buffer for managing smaller, more frequent economic shortfalls and a larger, invested portion for serious financial shocks,” they wrote in a new white paper. “We argue that this system, facilitated by payroll deduction, creates a practical, efficient solution for strengthening financial resilience among Canadians.”

The researchers suggest that payroll deductions (they suggest between six and eight per cent of gross pay) be used to fund an account that covers around half of someone’s monthly wages, then a second account that would be invested (effectively, a financial crisis pension) and would be available to cover three months of expenses in the case of job loss, illness, or other longer-term financial shocks. These accounts would be portable and kept at arm’s length from employers.

“Financial fragility seeps into all aspects of life for those who are struggling,” said Ivey professor emeritus Chuck Grace. “But our research shows workers who have even modest savings set aside are dramatically less likely to fall behind on debt payments or turn to costly last-resort measures like high-interest credit cards and RRSP withdrawals.

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The researchers point to real-world implementation they say has been very successful. In the UK, trial programs have found that workers are regularly making use of these accounts, while in the U.S. context, there is evidence to suggest the savings programs are able to “recover substantial productivity losses driven by financial stress,” noting that estimates put the productivity cost of financial stress at nearly $70 billion per year.

“In the U.S., they are fast becoming standard in workplace benefits, and similar momentum is building across the UK,” they wrote. “Yet, in Canada, this solution remains largely unexplored. That gap presents a unique opportunity — not only to lead, but to design programs that reflect international best practices from the outset.”

All in all, Canada’s Financial Wellness Lab suggests this way of thinking about financial wellness could have broad, national benefits. “Emergency savings are not a luxury; they are a foundational element of household financial stability — our Canadian shield,” they conclude. “Done right, employer-sponsored emergency savings accounts can become a new kind of employee benefit: one that delivers meaningful, measurable impact on financial resilience at scale.” Kieran Delamont