Learning about financial health in Canada

Adam Metzler; Yuhao Zhou; Chuck Grace; Adam Metzler; Yuhao Zhou; Chuck Grace

doi:10.3934/QFE.2021024

Quantitative Finance and Economics

2021, Volume 5, Issue 3: 542-570. doi: 10.3934/QFE.2021024

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Research article

Learning about financial health in Canada

1.
Department of Mathematics, Wilfrid Laurier University, Waterloo, ON, Canada
2.
Ivey Business School, Western University, London, ON, Canada

Received: 16 April 2021 Accepted: 15 June 2021 Published: 18 June 2021
JEL Codes: C10, G50, I30

This paper applies cluster analysis to eleven (continuous) years' worth of responses to the Canadian Payroll Association (CPA) survey of employed Canadians. The clustering algorithm clearly identifies three distinct groups of respondents. Between-group comparison of response patterns reveals that two of the groups lie on opposite sides of the financial health spectrum, and leads us to label their members "financially stressed" and "financially capable", respectively. The third group shares characteristics with both the stressed and capable groups, and we label its members as "financially coping". We find that financial stress is both widespread (one third of all respondents are identified as stressed) and complex (stress is only weakly related to simple demographics such as age or income). From a methodological perspective, an important point is that our use of cluster analysis allows us to generate rigorous insights into financial well-being, without having to measure it directly.
- financial health,
- financial well-being,
- financial stress,
- cluster analysis,
- survey data
Citation: Adam Metzler, Yuhao Zhou, Chuck Grace. Learning about financial health in Canada[J]. Quantitative Finance and Economics, 2021, 5(3): 542-570. doi: 10.3934/QFE.2021024

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Abstract

This paper applies cluster analysis to eleven (continuous) years' worth of responses to the Canadian Payroll Association (CPA) survey of employed Canadians. The clustering algorithm clearly identifies three distinct groups of respondents. Between-group comparison of response patterns reveals that two of the groups lie on opposite sides of the financial health spectrum, and leads us to label their members "financially stressed" and "financially capable", respectively. The third group shares characteristics with both the stressed and capable groups, and we label its members as "financially coping". We find that financial stress is both widespread (one third of all respondents are identified as stressed) and complex (stress is only weakly related to simple demographics such as age or income). From a methodological perspective, an important point is that our use of cluster analysis allows us to generate rigorous insights into financial well-being, without having to measure it directly.

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