New video: Precarious to Prosperous – Tackling Income Volatility in Canada

Precarious to Prosperous: Tackling Income Volatility in Canada

Remarks by Bharat Masrani, Group President and Chief Executive Officer,

TD Bank Group at the Economic Club of Canada, Toronto November 1, 2017

For a printable copy of the transcript, click here

Thank you and good afternoon. November is Financial Literacy Month in Canada, which provides me with an excellent backdrop to talk about the importance of our financial wellbeing – not only for each Canadian but, more broadly, for our country.

The benefits are well-documented. Being in good financial shape helps us live the way we want today, and provides us with greater confidence in our future.

We also know the ability to manage our money responsibly has never been more vital.

But for many Canadians being financially literate is simply not enough. They find themselves in precarious situations where a single event could wipe out their entire savings.

This may come as a surprise to many of us here today.

After all, when you hover up, life looks pretty good for most Canadians...

Although we have seen some recent softening, our national economy is performing well.  The unemployment rate hasn’t been this low since 2008. And we're seeing wage growth pick up.

But look just below the surface, and you'll find many Canadians struggling – struggling to manage their monthly expenses, let alone plan for their future.

Yes -- they may have jobs – they may even receive a decent annual income. But their monthly earnings are uncertain and unpredictable.

Earlier this year, TD conducted a national survey to determine the size and scope of this challenge in Canada.

Almost forty percent of respondents said they experienced income volatility over the past 12 months.

That's an estimated ten million people – a little less than half of working-age Canadians –and it includes 3.3 million people whose monthly income varied by 25 percent or more.

These are staggering numbers, and for me, underscore why this is an issue of national importance.

Think about the implications for those trying to make ends meet.

They are often forced to make trade-offs, which may provide some stability today, but that can hurt them down the road.

And what effect does this have on society?

Well, when twice as many Canadians feel like they are falling behind instead of getting ahead, you can appreciate the corrosive impact of such struggles.

And so, at TD, we see income volatility as a barrier to building a truly prosperous and inclusive society.

As we all know, before we can fix any problem, we need to acknowledge that it exists.  

And that's precisely what I'd like to do today.

This issue has been described as a "hidden inequality" because the financial health of households has historically been measured in terms of their annual income.

However, a growing body of research shows how difficult and challenging it can be to manage finances on a monthly or even a weekly basis.

TD survey respondents told us they were more likely to delay buying groceries, pay down a minimum amount on a credit card, or pay off monthly bills due to the unpredictable flow of their earnings.

Dramatic fluctuations in monthly income can also make it harder for people to invest consistently over time for their retirement or build up an education fund for their children.

Additionally, it adds stress – and can take people away from spending quality time with family and being fully engaged in the community.

I also worry about the stigma attached to such struggles.

Few of us, in this room, would include car repairs or a child's school trip in our definition of a "major life" event. But for those with uncertain monthly earnings, these costs can be beyond their reach or represent even a huge setback.

While people don’t feel good about their predicament, many are reluctant to seek help from their Financial Institutions, or other organizations, which can help stabilize their lives.

This can compound their challenges. We know – for instance – some of our customers, who have approved available credit with us, will still choose to take out much more costly loans from payday lenders.

All Canadians can experience this kind of volatility – it doesn’t matter how much money you earn. But our results also show the lower an individual's income, the more intense the volatility is likely to be.

And so it's easy to understand how this challenge can hold people back from living their lives to the fullest. Indeed, those with higher income volatility tend to have lower financial health, when it comes to their reported behaviours and their perceptions with respect to saving, spending, borrowing and planning.

So what's driving income volatility?

Let me talk about a couple of factors…

First: the evolving nature of work is certainly one of them.

We've seen, since the 1980s, a shift from a manufacturing to a service economy as well as the growth of temporary and part-time workers.

Indeed, in the years since the financial crisis, temporary employment has grown nearly twice as fast as permanent jobs.

Part-time employment among 25 to 54 year olds has also grown, on average, more than double that of full-time in recent years. 

Another significant factor is technology. It allows, for instance, employers to better manage their workforce in real time. The so-called "gig economy" is also creating new income opportunities, as well as, changing the relationship between employer and employee.

So how can we help turn this precarious situation into a prosperous future for the millions of Canadians experiencing dramatic spikes and dips in their earnings?

Fortunately, there are a number of organizations with the insights and expertise to answer this question in great detail.

  • But first and foremost, progress begins by recognizing that this is an issue of national importance. In this regard, we need more research in Canada. For instance, US research has helped policymakers better understand how families that experience fluctuations in monthly earnings are less likely to handle an unexpected expense, and are more likely to expect financial shortfalls in the years ahead. Some findings may be intuitive, but we need more 'hard' data to make informed decisions.
  • Second: there are no shortages of innovative ways to help people save money. Canada's public and private sector players should search the world for best practices. For instance, Prosper Canada, an organization we partner with, has highlighted how certain kinds of accounts and incentives -- in other jurisdictions -- have been effective in helping lower income households allocate a portion of their tax refund to a savings account. This can help smooth income and expense gaps for families with unpredictable incomes.
  • And third: leaders in public and private institutions, community organizations and advocates should recognize that the changing workplace does present new opportunities to grow and expand our economy – but these growth opportunities are not the end goal in and of themselves – they must, in fact, continue to build the kind of society all Canadians want. So let's anticipate challenges – and adapt where we must -- to ensure future generations are able to enjoy the same – if not a better – standard of living and quality of life, as we do.

We all have a role to play – including TD.

I talked earlier about the stigma associated with this issue. To Canadians who feel that way, let me first say you deserve to live a good life today, and to look to the future with confidence. It's ok to ask for help – from your Financial Institutions or other organizations that will help you gain control of your finances.

For many Canadians in this situation, the core challenge is about having money when it is needed most. So being flexible in the way we structure loans is an important way we can help.

If there are customers that need to delay a payment, or make adjustments, we want them to talk to us. And where appropriate, we can also help customers create the scheduled payment that accommodates their reality.

We also understand that traditional financial advice -- that has helped many of us -- may not be realistic for those who experience dramatic fluctuations in monthly income.

So, at TD, we are also developing innovative tools that provide all our customers with metrics to improve their own situation. For instance, we've found that TD MySpend, an app that provides our customers with insights on their spending patterns, has enabled users to increase their savings habits.

TD also looks at this issue from our colleagues' perspective – and more specifically our 12,000 Canadian part-time workers, who are mostly in our branch system.

As one example, our compensation practices are consistent regardless of employment status. So a colleague's hourly pay is based on his or her role or level – not on whether the person is a part-time or a full-time employee in Canada.

Ninety percent of our part-time colleagues are eligible to participate in our benefits programs.

And, on average, they work 25 hours per week and know their schedule four to six weeks in advance, enabling them to better plan their lives.

Finally, let me turn to what we are doing in the community.

Income volatility can be a destabilizing and disruptive force in society. In part, because it can discourage people from looking ahead and making important decisions that will lead to a better life for themselves, and their families.

Not surprisingly, if you don't feel like you are able to move forward -- to have hope and aspiration for the future -- you stand still, or worse, retreat from participating fully in what life has to offer. You can feel excluded. And we have all seen the kind of economic and social ills that have emerged in our city, from people feeling left out.

To this end, the goal of our community investments will be to help build a more inclusive future where we can all have the opportunity to prosper in a changing world. We will have more to say on our commitment in the New Year but our aim is to support ideas, programs and initiatives that advance this goal, and to work with others to maximize our impact.  

So let me wrap things up.

There are many Canadians who have little or no savings to protect themselves from unexpected events.

They are consumed by managing through short-term pressures -- to put food on the table, keep their homes warm – it is hard for them to look to their future with confidence.

It’s not because they lack an income – a lack of desire or drive – and it’s not necessarily a lack of skill or knowledge in making the right financial decisions.

It’s just that their earnings are volatile.

But I am convinced the current challenges faced by many people don’t have to be their permanent reality. Canadians have a long history of coming together for common cause.

Our journey begins with acknowledging a problem exists, and is worth solving together.

Let there be informed discussion and debate. Let us be open-minded in what we can do, and what we can do to make things better. And let us begin now.

Thank you.

Bharat Masrani

Group President and Chief Executive Officer

TD Bank Group