The hidden financial effects of Daylight Saving Time

Practiced by 40% of the world’s population, Daylight Saving Time (DST) is a biannual clock-adjusting tradition with some surprising financial consequences. Originally enforced as a cost-saving initiative, DST impacts returns on investments, workplace productivity, and energy consumption – and not always for the better. From DST’s intriguing past to its shaky future in Europe, here are some of the financial implications of Daylight Savings Time.

When we think of Daylight Saving Time (DST), we often picture the bi-annual ritual of adjusting our clocks forward or backward by one hour. It's a practice that might seem like clockwork for some, but it’s a relatively new phenomenon with a fascinating political and economic history. While the origins of the tradition are often contended. From the great mind of Benjamin Franklin to the early Canadian pioneers and the rise of the German Empire, here’s how DST became such a widely adopted tradition.

Some theorists trace the origins of DST back to the brilliant mind of Benjamin Franklin during the 18th century. Legend has it that Franklin proposed the idea while living in Paris when he realized he was wasting his precious morning hours in bed. His remedy? Suggesting that the French fire cannons at sunrise to rouse Parisians from their slumber and, in turn, reduce evening candle consumption. 

While Franklin may have had the idea over a century earlier, it was on July 1, 1908, in Port Arthur, Ontario — known today as Thunder Bay — that DST was finally implemented. This innovative idea quickly gained momentum, and other Canadian locations followed suit. For instance, on April 23, 1914, Regina in Saskatchewan adopted DST, while Winnipeg and Brandon in Manitoba did the same on April 24, 1916. DST proved so popular in Regina that it became an automatic bylaw, signaling its widespread appeal.

However, the widespread adoption of DST occurred after Germany introduced it in 1916. As World War I raged on, the German Empire and its ally Austria decided to turn their clocks ahead by one hour on April 30, 1916, to conserve fuel for the war effort by reducing the need for artificial lighting. The UK, France, and many other nations then embraced this idea within weeks. However, after WWII concluded, most of these countries reverted to standard time, and DST went into temporary hibernation across Europe.

Following its wartime hiatus, DST made a remarkable comeback in Europe during the 1970s, driven by pressing energy concerns spurred by the global oil crisis. France led the charge by reviving DST in 1976, and by the close of the decade, most of Europe had once again embraced the practice of changing their clocks twice a year. To help standardize time across the EU, the European Union introduced a directive in 1996 that established a uniform DST schedule across the bloc. This directive, still in effect today, encompasses the entire European Economic Area (EEA), including Switzerland but excluding Iceland. According to this directive, clocks spring forward by one hour at 1 a.m. on the last Sunday of March, before reverting to standard time at 1 a.m. on the last Sunday of October.

As of today, roughly 70 countries use DST. While this might seem like a large number, when considering that countries like China, India, and Japan don’t observe DST, it’s clear that those that do embrace this tradition are in the minority. Geography plays a significant role here. Countries situated near the equator, where daylight hours remain relatively consistent throughout the year, tend to forgo changing their clocks. In contrast, nations further from the equator are more inclined to implement DST as daylight hours shift more dramatically as the seasons change.  

And that’s not the only geographic divide when it comes to DST. In the Northern Hemisphere, countries such as the United States, Canada, the UK, and the countries of the European Union, all practice this ritual. However, in the Southern Hemisphere, while countries like Brazil, Chile, Australia, Fiji, and New Zealand utilize DST, many nations in South and Central America, Africa, and Southeast Asia don’t. 

Likewise, despite their vast territories, China, India, and Russia don’t utilize DST. The same holds true for specific regions within larger nations. In the United States, for instance, Hawaii and most of Arizona do not observe DST, creating a temporal patchwork where some states embrace it while others do not.

Originally conceived as a way to seize more of the day and cut back on unnecessary artificial lighting, DST comes with several financial repercussions. However, not all of these consequences are particularly beneficial and many are frequently contested. As a result, DST continues to be a source of contention for many governments worldwide. Here are some ways DST makes a financial impact–for better or worse. 

Research suggests that in the days following a DST clock change, volatility increases in the stock market, causing stocks to fall. It’s hypothesized that the disruption in routine introduces an element of uncertainty into financial markets. While traders and investors adjust to the temporal shift, it can lead to fluctuations and unpredictability in stock prices. 

Though we may change the time on the clock, our biological rhythms are often not as quick to catch up to such shifts. Studies have shown that DST can have a tangible impact on workforce productivity. An estimate suggests that DST costs the United States a staggering $434 million in lost productivity each year. One of the culprits behind this productivity drain is what researchers call "cyber-loafing." In the days following the time change, employees are more likely to spend their work hours procrastinating online instead of focusing on their tasks because they are more tired than usual. This distracted behavior can lead to reduced output and, consequently, lower earnings for individuals and businesses.

One of the key arguments in favor of DST has historically been its potential to save energy. The idea is that by shifting clocks forward in the spring and backward in autumn, reliance on artificial lighting is reduced and energy consumption is decreased. However, studies on the energy cost savings of DST are notoriously inconclusive. Even when studies report a positive cost reduction, the financial impact of DST on energy consumption appears to be minimal. While DST may decrease the number of hours lights are switched on, it could also increase energy use for heating and cooling homes. 

In 2018, the European Parliament took a bold step by voting to eliminate DST across Europe. This decision was prompted by a poll of 4.6 million EU citizens, which revealed widespread support for scrapping DST. With the vote in place, the responsibility for implementing this change shifted to the European Council.

However, the European Council faced an unexpected roadblock. To abolish DST, they required an impact assessment from the European Commission. This assessment was crucial in understanding the potential consequences of such a move on various aspects of society, from economics to public health. Initially, the changes were slated to take effect by 2021. But, in the aftermath of Brexit, COVID-19, the ongoing war in Ukraine, and the global energy crisis, the initiative has since come to a standstill and the fate of DST currently hangs in the balance. 

No matter the time or season, with N26, gaining control of your finances is made simple. Intuitive features like Spaces sub-accounts let you easily allocate funds for specific expenses or save towards your goals. Use Insights to organize your finances, track your spending, and set budgets. Plus, push notifications help you monitor your account activity in real-time, empowering you to take care of your financial well-being. Opening an account in minutes.