Millions of Canadians make financial decisions every day, which can have significant impact on their lives. And while it would be ideal to know the right answers when addressing personal debt and finance, this isn’t always possible.
People don’t know what they don’t know
Loans Canada recently surveyed 1655 credit-constrained Canadians, confirming the truth - people don’t know what they don’t know. Close to 70 per cent of the respondents showed confidence in their financial know-how, but when asked questions about their financial habits, their performance painted a different picture.
The study also revealed that close to 50 per cent of those surveyed said they felt good about their financial literacy, but are not tracking their expenses or spending habits nor are they paying their credit card bills in full every month.
On top of it all, many Canadians are not saving regularly.
And one of the most interesting Loans Canada finding? Canadians who claim to be financially knowledgeable typically have more debt compared to those who admit their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
Factor in bad spending habits, not tracking expenses or paying credit card bills in full each month, and debt can accumulate very quickly and be difficult to pay off.
Canadians like to spend money. Supporting this is the fact that the average Canadian consumer owes $8,500 in consumer debt, not including their mortgage. While around 12 per cent have consumer debt over $25,000.
Without basic financial management skills and information, not only can North Bay residents be more easily lured into debt but it can make it challenging for credit-constrained Canadians to climb out of a personal financial hole.
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
Being financial illiterate can lead to dire consequences - 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 handle on debt problems?
Make note of debts: Track all debts to understand the complete picture of what’s owed. This exercise will help form the best strategy to reduce or eliminate debt.
Budgeting is crucial: Create a monthly budget that factors in both fixed expenses like car and mortgage payments, variable costs and debt repayment. List needs versus wants and find new ways to cut back on spending.
Pay on time, pay in full: Close to twenty-five per cent of Loans Canada survey participants believe that making the minimum credit card payment saves them from being charged interest. This is false. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt: Explore refinancing or loan consolidation options, which may lead to a lower payment. Avoid larger interest payments by paying down debt carrying the highest interest rate.
Financial well-being can be improved by working on financial literacy. Loans Canada’s research serves as a reminder to Canadians 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, thanks to the government and private institutions,” explains Loans Canada Chief Technology Officer, Cris Ravazzano. “For example, Canada.ca has a whole section devoted 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.