Exploring your client’s economic pessimism

Many Canadians are pessimistic about their economic prospects — an attitude advisors might want to explore with their clients.

An Angus Reid Institute poll found that 43% of Canadians expect worsening economic conditions provincially, while only 21% expect improving conditions.

Results varied widely by province.

In Alberta, four in five respondents (79%) said the provincial economy will deteriorate over the next year. The proportion of Albertans who said job loss was a serious worry was more than double the national average (34% versus 14%).

In Quebec, 24% expected worsening conditions, compared to 30% who expected improvement.

The poll also found that among the 50% of workers who received raises in the last year, only 9% said the raises made a significant positive impact on their financial well-being. Half said the impact was negligible.

It’s unclear whether actual worsening economic conditions, as opposed to expectations or other factors, contributed to Canadians saying the impact of their raises was negligible.

While there are serious economic challenges regionally, Canada overall exhibits generally strong economic indicators. And, while wage growth has been stagnant in recent years, recent signs point to wage growth outpacing inflation, helped by a higher rate of retirement, the poll noted.

Regardless of whether a client’s economic expectations are realistic, they’re worth exploring, especially if they result in negative behaviours. For example, is your client spending that raise on necessities because they have to, or on retail therapy because they feel the need for a quick pick-me-up?

Advisors can have a huge impact on clients if they make a plan regarding raises. Research from Richard Thaler (University of Chicago) and Shlomo Benartzi (University of California) found that getting workers to commit in advance to allocating future pay raises toward retirement savings resulted in increased average saving rates of 13.6% from 3.5% over 40 months.

About the poll: The Angus Reid Institute conducted an online survey from Nov. 8 to Nov. 12, 2019, among a representative randomized sample of 1,510 Canadian adults who are members of Angus Reid Forum.