Millions of Canadians are faced with making financial decisions daily, which can have a significant impact on their lives. And while it would be nice for everyone to know the right answers when addressing personal debt and finance, this isn’t always the case.
People don’t know what they don’t know
Loans Canada conducted a recent study of 1655 credit-constrained Canadians, which revealed that close to 70 per cent of those surveyed claimed to be financially knowledgeable, however when questioned about their financial habits, their performance told a much different story.
The study showed that nearly half of the respondents who felt confident about their financial literacy are not tracking their expenses or spending habits nor are they paying their credit card bills in full every month.
Many are not saving regularly.
And the most staggering Loans Canada finding? People who claim to be financially knowledgeable typically have more debt than people who claim their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
Canadian consumers don’t have a problem spending money. In fact, the average Canadian consumer finds themselves in $8,500 in consumer debt, which doesn’t include their mortgage. Approximately 12 per cent have consumer debt of over $25,000.
Bad spending habits combined with not tracking expenses or paying credit card bills in full each month, can lead to quick debt accumulation, which can be difficult to pay off.
Lacking basic financial literacy and management skills can lead Canadians to debt and make it challenging for credit-constrained Canadians to climb out of a personal financial crisis.
Almost half of credit-constrained Canadians have taken out multiple loans, with 44 per cent doing so just to make ends meet.
The devastating effects of financial illiteracy and the consequences of debt
The consequences of financial illiteracy can be overwhelming, leading Canadians to unmanageable debt levels, poor credit ratings and derailed savings plans which in turn creates barriers to make ends meet or meet future goals or aspirations.
How can Canadians get a better grasp of debt problems?
Make note of debts: Tracking all debts will give a clear picture of what’s owed. This assessment will help form the best strategy to reduce or eliminate debt.
Monthly budgeting is crucial: Developing a budget, which factors in car and mortgage payments, variable costs and debt repayment is an important step towards financial health. Get creative, determine needs from wants, and find new ways to reduce spending.
Pay on time, pay in full (if possible): Loans Canada survey participants admitted to believing that making the minimum credit card payment saves them from being charged interest. It doesn’t. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt: By paying down debt carrying the highest interest rate, credit-constrained- Canadians can avoid larger interest payments. Refinancing or consolidating high-cost loans may lead to a lower payment.
Financial well-being is achieved by improving financial literacy. Loans Canada’s research shows that being confident about financial knowledge does not protect from the pitfalls of bad financial behaviours.
“There are a lot of free financial literacy resources available to residents in the Burnaby area, both from the government and private institutions,” explains Loans Canada Chief Technology Officer, Cris Ravazzano. “For example, Canada.ca has a whole section dedicated to money and finances with great information that all Canadians can benefit from. And at Loans Canada we’re always creating educational content about credit building and debt saving strategies. I think more effort is required to increase awareness about these types of resources.”
Gaining and maintaining financial literacy is the foundation of good financial outcomes and greater financial health as a whole.