Financial stress is costing Canadian employers nearly $70 billion in lost productivity each year. A new idea introduced by researchers at Canada's Financial Wellness Lab, based at Western, could hold the key to reversing that trend.
Released today, the Building Financial Resilience Through Employer-Sponsored Emergency Savings Whitepaper, authored by Canada's Financial Wellness Lab in partnership with the National Payroll Institute and CI Wealth, lays out a roadmap for how emergency savings accounts, delivered through payroll, can transform financial fragility into financial resilience for millions of working Canadians.
Chuck Grace
"For years, Canadians have been feeling the stress of falling further, and further behind financially. While wages have tried to keep pace, expenses, debt and interest costs have surged further ahead," said Chuck Grace, co-founder of Canada's Financial Wellness Lab.
According to recent data from the National Payroll Institute, a professional association representing payroll workers across Canada, more than one quarter of Canadians are living paycheque to paycheque and would be unable to cover a one-week delay in pay. And unfortunately, this financial stress doesn't rest when they clock in at work.
"Financial fragility seeps into all aspects of life for those who are struggling, 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," said Grace, finance professor emeritus at Ivey Business School. "Unfortunately, financial literacy and reminding Canadians of the importance of saving isn't helping them get a better handle on their finances. They need a tangible solution, and I believe we've found it."
Financial stress is a costly workplace problem
When employees are struggling financially, their work can suffer. Further research from the National Payroll Institute finds over half of employees (51%) admit to spending work hours worrying about money, and six per cent spend more than 90 minutes a day preoccupied with personal finances. This distraction translates into $69.5 billion in lost productivity annually, more than double the $26.9 billion cost recorded just four years ago.
"For too long, the financial strain faced by Canadian households has been treated as a personal problem," said Peter Tzanetakis, president and CEO of the National Payroll Institute. "The truth is: financial stress comes to work with your employees. It's increasingly costing businesses billions in lost productivity, absenteeism and turnover. Employers need to start embracing solutions that treat the root causes of employees' stress, or they will continue to pay the price. Payroll-delivered emergency savings accounts present a practical, scalable solution to strengthen both employees' financial well-being and employers' bottom lines."
Emergency savings model turns stress to strength
Emergency savings accounts are meant to serve as "rainy day funds" for employees. The whitepaper proposes integrating these savings programs directly into existing payroll systems, which already reach 85 per cent of Canadian workers. This approach would allow employees to automatically divert a small, self-selected portion of their paycheque into a dedicated savings account each pay period.
Employees would retain full control of the funds, could make withdrawals as necessary without penalty and have the option to opt out of participating at any time. Employers could also choose to match contributions, offer financial incentives or integrate emergency savings accounts into existing HR and benefits platforms to encourage participation. Through these automatic contributions, workers can steadily build a financial safety net without needing to take extra steps or make ongoing decisions.
To make this system effective across the economy, the researchers recommend legislative and regulatory updates to allow automatic enrolment in employer-sponsored emergency savings programs, similar to how some workplace pension contributions function today. This change would help overcome common behavioural barriers to saving that prevent many Canadians from setting money aside on their own.
The whitepaper outlines two levels of savings targets, designed to help Canadians through varying scales of financial emergencies:
- 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
A pilot project is currently underway to measure the full effect of the proposed savings buffer.
"Just as auto-enrolment has revolutionized retirement savings through RRSPs and pensions, applying the same behavioural design to short-term savings can be a game changer," said Chris Enright, EVP and co-head of Wealth Canada, CI Financial. "Emergency savings accounts are simple, accessible and cost-effective for employers to implement, but the impact could be transformative."
Call to action
This whitepaper is the first of its kind in Canada, combining empirical evidence with behavioural finance insights to present a practical blueprint for policymakers, payroll professionals and employers.
"Financial stress costs are not theoretical. They're real, and they're growing," said Tzanetakis. "Supporting emergency savings and employee's financial wellness is a strategic investment. Emergency savings accounts offer a clear return on investment for organizations that prioritize the financial resilience of their employees."
