For help with finances and taxes, many Canadians turn to their financial institution, an advisor, an accountant or a tax preparation company.
To whom can the less fortunate turn?
According to a new report from Prosper Canada, low-income people are having difficulty finding affordable, reliable financial services in the market that suit their needs, which are very different from those of the rest of the Canadian population.
Prepared in collaboration with commercial and community financial service providers, using research from the Financial Resilience Institute, our study finds that there is little argument to convince companies to design and market financial services aimed at low-income people, who provide them with less profit than more affluent customers.
Consequently, most mainstream financial services do not meet the needs of low-income people, and the majority of service providers do not know enough about the reality of this population to give them adequate and reliable advice. For example, for people with modest incomes, contributing to an RRSP rather than a TFSA will inevitably lead to costly clawbacks of benefits at retirement, but financial institutions do not always take this into account when selling a savings product to this clientele.
Community tax clinics offer free tax preparation assistance, but only during tax time and to people with simple tax situations. Low-income people who seek help at other times of the year, who are self-employed, or who have a more complex tax situation, generally need to deal with a commercial tax preparation company. In most parts of the country, there is no free, year-round assistance available to solve tax problems or to help understand the intricacies of income benefit programs.
Obstacles
Non-profit organizations can provide free or low-cost advice to people dealing with debt, but these organizations are underfunded and not available everywhere.
“Here in Quebec, there are about 30 consumer associations that offer personal finance services. However, as our funding is insufficient, it is impossible for us to meet the demand. However, the current context, which combines inflation and a high debt ratio, makes the problem of access to our services even more glaring,” says Gabriele Roehl, budget advisor at the ACEF du Sud-Ouest de Montréal.
Financial institutions offer basic services free of charge (e.g. budgeting and savings apps or help in choosing an appropriate account or loan product), but they reserve their detailed financial planning services for holders of valuable assets and investments. Other financial service providers are remunerated in the form of investment commissions or fees, which makes them virtually inaccessible to low-income people.
Distrust is another obstacle. Indeed, since low-income people often have a lower level of trust than the rest of the population, they are less likely to trust financial professionals. This distrust is even more marked among people with low incomes who are racialized, Indigenous, 2SLGBTQI+ or with disabilities, who must also deal with discrimination.
So where will low-income people find the help they need?
Needs
Access to adequate and quality financial services and advice is associated with a good financial situation. Therefore, if the lack of services available in the market for people with low incomes is not addressed, they will not find the help they need to maximize their income, solve pressing financial problems or establish and achieve financial goals.
As the affordability crisis continues in the country, it is imperative to address this issue, as the price of inaction continues to rise for low-income people, who are seeing their hardship worsen, and for the general population, who are facing an explosion in demand for community, social and health services.
Large-scale, state-funded pilot projects have demonstrated a need for free financial services in the community and found that these reduce financial stress for low-income people and help them improve their income and other aspects of their finances. According to one report, 95% of participants would recommend these services to others. The Ontario government has made the wise decision to continue funding these projects, but obtaining sustained and strategic federal support remains problematic.
It is time for Canada to follow the example of other countries (such as the United Kingdom, Australia and New Zealand), which have taken strong action to fill a similar gap in their market through cross-sector collaboration and investments in government and community financial services that provide citizens with the help that the private sector cannot provide.
In Canada, the gap in access to financial services will not close by itself, and low-income people cannot afford to wait. It’s time to take action.