With more than one-quarter of Canadian households unable to weather a one-week delay in pay, not having emergency funds on hand can be detrimental.DARRYL DYCK/The Canadian Press
Whether it be a sudden job loss, an illness or a roof leak, having quick access to cash can mean the difference between a manageable financial setback and a crisis. And as Canadians continue to navigate economic uncertainty sparked by the trade war, experts say creating an emergency fund – separate from your savings – is key to building financial resilience.
“The issue here isn’t financial. The issue is behavioural,” said Chuck Grace, co-founder of the Financial Wellness Lab at Western University. “For the vast majority of folks, putting $10, $20 or $25 a month into an emergency account is not a financial struggle.” But the impact of not having emergency funds, on the other hand, can be “really dramatic.”
According to the 2024 National Payroll Institute Survey of Working Canadians, more than one-quarter of Canadian households live paycheque-to-paycheque without means to weather a one-week delay in pay.
Mr. Grace and his team measure financial resilience by looking at Canadians’ capacity to absorb financial shocks and their reliance on debt. “We have a lot of research to suggest that there’s a number of Canadians that use their credit cards in emergencies and don’t pay it off,” he said.
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Jodie Stauffer, an Edmonton-based certified financial planner with Money Coaches Canada, said the current U.S.-Canada trade war, market volatility and a slumping job market have created a “perfect storm” for Canadians to have to face their financial reality.
She sees that even her high-income and high-net-worth clients are struggling to get by. “They just haven’t been educated on how to control their finances,” she said. An emergency fund “isn’t just your everyday savings account that you tap into whenever you feel like it.”
Ms. Stauffer points to how human psychology plays into everyday financial decisions. She recommends parking emergency cash in a separate high-interest savings account and even changing your online banking settings so that you don’t see the account at login, taking away any temptation to spend it.
She also suggests viewing contributions into this separate account as non-optional “payments” by setting up an automatic transfer on pay day.
Another tip she shares is to do online grocery shopping to allow for more self-control. “Very few people stick to a budget when they’re physically in the store,” she said.
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While how much one should have in their emergency savings depends on the individual’s situation, three- to six-months’ salary is a good place to start, according to Blair Lukan, a financial adviser at Edward Jones in Saskatoon. “If you started a small business, maybe your emergency fund needs to be bigger, or if you’re employed in an industry where you don’t see layoffs, you can save in the lower end of that range,” he said.
Mr. Grace estimates the average Canadian should have about $2,500 or a half-month’s salary saved for sudden expenses, such as when your car breaks down, and should be prepared to cover at least three- to four-months’ expenses for unplanned events, such as a job loss or illness.
There are reasons for employers to help their workers save, too. “Someone who is stressed over their finances is probably spending a half-hour to an hour a day worried. They aren’t necessarily focused on their work,” said Mr. Grace. His research estimates financial stress causes productivity loss of about $3,500 per employee per year.
Mr. Lukan, who specializes in advising business owners, says he’s having more conversations with his clients about how they can support their employees to be more financially resilient.
Some countries have legislation that encourages workers to save. Take, for example, the Secure 2.0 Act in the U.S., a federal law that includes a recent provision enabling employers to automatically enroll employees into emergency savings plans as part of their retirement program.
Mr. Grace believes regulatory changes like this would make a positive impact on the way Canadians save. “Canada has just been embarrassingly slow, which I find fascinating given the threats we face,” he said.
He explains that there are laws in Canada that currently prohibit auto-enrolment, putting the onus on workers to opt-in to such programs. This results in a participation rate of about 7 per cent, but if auto-enrolment were default, “we’re closer to 50 per cent.”
In the meantime, Mr. Lukan advises his clients to have regular check-ins with a financial adviser to get ahead of unexpected expenses. “Because then you’re preparing instead of repairing,” he said. “The best time to fix the roof is when the sun is shining.”
