The Observer


The three-legged stool: Is it still standing?

by Janice Holman, Defined Contribution and Financial Wellness Practice Lead, Eckler

When the three-legged stool, a long-held metaphor used to describe the most common sources of retirement income (personal savings, company-sponsored retirement and savings plans, government programs) was conceived, it was expected that each leg would remain in balance with the others, each contributing toward the common goal: a secure retirement. It’s been close to three decades since an actuary first used that term. It’s time to take another look at how that stool is holding up. Are the legs still in balance? Is the stool still standing?

Let’s start by recognizing that Canadians struggle with their finances. According to Eckler’s recent research on financial wellness in the workplace, more than half of Canadian employees feel some degree of stress about their finances, and close to one-third would describe it as a high degree of stress.

Many years later, that three-legged stool is supporting a society that is struggling with record levels of debt, multiple financial and personal obligations, and limited support or financial knowledge to manage it all.

Signs of wear  
At the end of 2018, Canadians had $1.79 in credit market debt for every dollar of disposable household income, according to Statistics Canada. In fact, Canada ranks fifth among industrialized nations in household debt-to-income ratio. Only Switzerland, Norway, the Netherlands and Denmark have higher ratios.

Of course, having more debt than disposable income makes it very difficult to save for the future. Statistics Canada reported in 2018 that the household savings rate — the proportion of disposable income remaining after spending — averaged 1.4% over the year. When you combine our high levels of debt with increased longevity and declining long-term interest rates, it’s becoming increasingly difficult to set aside enough money for retirement. In fact, for Canadians without a workplace pension, $3,000 is the median retirement savings for those nearing retirement[1].

There are other factors at play as well. For many Canadians, understanding and managing multiple financial assets and obligations is a complex and daunting task so we procrastinate. Many of us are guilty of this — especially when it comes to retirement planning.
How well people understand financial information is another issue. Increasingly, the average Canadian is responsible for making a host of financial decisions about their workplace pensions and/or personal savings plans and must bear the consequences of those decisions.

According to the Canadian Council on Learning, when it comes to numeracy skills, 57% of Canadians have a Level Two or lower skill level. This means that more than half of Canadians would have difficulty understanding financial information that is not presented in the most basic of terms.

Combine this with a varying level of skill in understanding typical financial documents like charts and graphs, and it becomes increasingly worrisome that communication from financial institutions and employers is typically not presented in the most effective way possible and may not be doing enough to encourage participation or foster adequate savings outcomes.

Wobbly but not down
While the onus is increasingly on the individual to manage their “financial wellness,” the entire system (the stool), is in jeopardy if Canadians are not able to achieve adequate retirement savings. Employers will see continued decline in productivity as well as increased absenteeism and benefits costs, while governments will see higher demand on social services and government assistance programs like Old Age Security and the Guaranteed Income Supplement.

The three-legged stool is certainly looking a little wobbly, but there are things that can be done to support it. One of the most effective supports is financial education. Increasingly, governments and financial institutions have championed financial education initiatives aimed at helping Canadians achieve a more secure retirement. They have also acknowledged that workplace education programs are among the most effective. Employers are a trusted source of information, and employees want to receive financial education at work. In fact, according to Eckler’s survey on workplace financial wellness, 80% of employees want some type of financial education at work.

While a growing number of employers are offering education at work, the focus has typically been on making sure employees understand their workplace retirement benefits. Given the record levels of debt and the multiple financial and personal obligations many Canadians face, employers could provide greater support by shifting the focus to the broader concept of overall financial wellness.

By helping their employees understand and manage the bigger financial picture, employers are not only ensuring that their employees have enough money to retire when they want to, they’re also reducing the impact of financial stress on their workplace productivity and company benefits.
The solution is clear: people who are actively engaged in planning and managing their financial health are more likely to achieve their financial goals — that’s good for governments, employers, Canadians — and it helps ensure that our stool remains firmly intact.

[1] Shillington, R., An Analysis of the Economic Circumstances of Canadian Seniors (Rep.). Broadbent Institute. (2016). Retrieved from 

Holman,-Janice-March-2015.jpg Janice Holman, Defined Contribution and Financial Wellness Practice Lead, Eckler 
Janice leads the defined contribution and financial wellness consulting group at Eckler, and is a Principal of the firm. Her passion for helping companies design effective retirement and savings plans and providing the support members need to reach their financial goals fuels all that she does. Her background of investment management, employee communications and DC consulting provide her with a wholistic view when creating solutions for clients and engaging with members. Janice works with some of the largest Canadian organizations and is committed to the CAP industry. She regularly contributes to industry publications and is a frequent speaker at industry conferences.