White paper floats idea of automatic payroll diversions as way to help Canadians save for a rainy day

A new study has found very few Canadians have any emergency savings.

A recent report from Western University’s Financial Wellness Lab is floating the idea of automatic payroll deductions into employees’ savings accounts as a way to limit financial stress and help people save for a rainy day.

The “Building Financial Resilience Through Employer-Sponsored Emergency Savings Whitepaper” was authored by Canada’s Financial Wellness Lab in partnership with the National Payroll Institute and CI Wealth and suggests establishing automatic emergency savings accounts, delivered through payroll.

Speaking on CTV Your Morning Ottawa on Monday, Jessica Moorhouse, a personal finance expert and author of “Everything but Money”, says the fact that many Canadians do not have adequate savings is concerning.

“When you don’t have any emergency savings and an emergency happens—your car breaks down, you lose your job, your pet gets sick—where is that money going to come from? That’s usually when people rely on credit,” she said. “First, they go to the credit card, which can be a really high interest rate, say 19, 20 per cent, or a line of credit. If they are lacking good credit or access to credit, they may resort to payday loans, which are the most expensive forms of credit.”

Moorhouse says, instead, employers can establish automatic payroll deductions that direct funds into an emergency savings account owned by the employee.

“This currently is something that you, as an individual, can ask your payroll department. ‘Can you set up a situation where you take a percentage off my payroll and make it go to one of my savings accounts?’ Most people don’t do this because they have no idea that they can even do this or how to set it up,” she said.

Instead, the white paper suggests the deductions be opt-out, rather than opt-in.

Western University says financial stress doesn’t end when employees clock in.

“Further research from the National Payroll Institute finds over half of employees (51 per cent) admit to spending work hours worrying about money, and six per cent spend more than 90 minutes a day preoccupied with personal finances,” a news release from the university says.

“This distraction translates into $69.5 billion in lost productivity annually, more than double the $26.9 billion cost recorded just four years ago.”

Peter Tzanetakis, president and CEO of the National Payroll Institute, is quoted in Western University’s release saying, “Employers need to start embracing solutions that treat the root causes of employees’ stress, or they will continue to pay the price.”

According to the Canadian Centre for Policy Alternatives, the top 100 CEOs in Canada were paid 210 times more than the average worker’s wages in 2023.

“Payroll-delivered emergency savings accounts present a practical, scalable solution to strengthen both employees’ financial well-being and employers’ bottom lines,” Tzanetakis said.

The white paper proposes two levels of savings targets:

• A starter emergency fund equivalent to about $2,500, or half a month’s income, enough to cover common financial shocks like car repairs
• A larger buffer, equivalent to at least four months’ income, for extended disruptions or major life events, like temporary income loss

“If we create a program where you’re automatically enrolled, it’s still your money, it’s going into an account you have access to, you own it, but this is just clear behavioural finance, the pay yourself first method,” said Moorhouse. “It’s a really simple solution to get people to have those emergency funds they aren’t currently saving.”

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