Every day millions of Canadians are faced with making financial decisions. Many of those decisions will have significant impacts on their lives. And while it would be nice to have all the right answers when addressing personal debt and finance, this isn’t always the case.
People don’t know what they don’t know
Respondents from a recent Loans Canada study revealed a hard truth - people don’t know what they don’t know. Almost seventy per cent of the 1655 credit-constrained Canadians surveyed showed confidence in their financial know-how, but when questioned about their financial habits, how they approach their personal finances painted a very different picture.
Close to half of survey respondents who felt good about their financial literacy admitted that they are not tracking their expenses or spending habits. They also are not paying their credit card bills in full every month.
When it comes to saving regularly, they aren’t doing that either.
And another shocking finding - people who claim to be financially knowledgeable typically have more debt than those who admit their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are many Canadians in debt?
Getting into debt is as easy as spending money. Research shows that the average Canadian consumer owes $8,500 in consumer debt, which does not include their mortgage.
Forming bad spending habits combined with not tracking expenses and not paying credit card bills in full each month can lead to large debts, which can be difficult to pay off.
Lacking basic financial management skills and financial literacy can more easily lure Guelph residents into debt, making it challenging for credit-constrained Canadians to climb out of a personal financial rut.
Almost half of credit-constrained Canadians have taken out multiple loans, with 44 per cent doing so just to make ends meet.
The consequences of debt
For financially illiterate Canadians, the consequences can be overwhelming, leading to unmanageable debt levels, poor credit ratings and a non-existent savings plans, which in turn creates barriers to make ends meet or meet future goals or aspirations.
How can Canadians get control of debt problems?
- Make note of debts: Gain a complete picture of what’s owed by writing down all debts. This assessment will help to create a strategy to reduce or eliminate debt.
- Monthly budgeting is crucial: First, eliminate the ‘wants’ and determine needs while finding new ways to reduce spending. A monthly budget should factor in both fixed expenses like car and mortgage payments, variable costs and debt repayment.
- Pay on time, pay in full (if possible): Paying credit card bills on time and in full will help avoid interest payments and potential credit score damage. Approximately 25 per cent of Loans Canada survey participants believe that making the minimum credit card payment saves them from being charged interest. This is inaccurate.
- Lower the cost of debt: Pay down debt faster by focussing on high interest rate debts first. Refinancing or consolidating high-cost loans may lead to a lower payment.
Improving financial literacy can help Canadians achieve financial wellness. Loans Canada reminds Canadians that being confident about financial knowledge does not protect against bad financial behaviours
"There are a lot of free financial literacy resources available to Canadians, 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 resources, which 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.