Learning about financial health in Canada

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.