Millions of Canadians are forced to make financial decisions every day. These decisions can have significant impact on their lives. And although it would be ideal for people to know the right answers when dealing with personal debt and finance, this isn’t always the case.
People don’t know what they don’t know
When Loans Canada conducted a recent study of 1665 credit-constrained Canadians, it garnered some surprising results. Close to 70 per cent of survey subjects demonstrated confidence in their financial know-how, but when probed about their financial habits, their performance told a much different story.
Close to half of survey respondents felt good about their financial literacy. Interestingly, this same group admitted to not tracking expenses or spending habits, and almost all are not paying their credit card bills in full every month.
Regular savings? Not happening.
And one of the most staggering Loans Canada finding? Canadians who claim to be financially literate typically find themselves in more debt than people who claim their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
While around 12 per cent of Canadians have consumer debt over $25,000, the average consumer owes $8,500 in consumer debt, not including their mortgage. Spending money is easy.
Mix bad spending habits with not tracking expenses and not paying credit card bills in full each month, debt can build up very quickly and be difficult to pay off.
Canadians be easily lured into debt simply by lacking basic information on how to manage finances and financial literacy. Debt makes 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 negative effects of financial illiteracy and the consequences of debt
For Canadians, including Collingwood residents, the consequences of being financial illiterate can be overwhelming, leading to unmanageable debt levels, poor credit ratings and derailed savings plans, which tend to creates barriers to make ends meet or meet future goals or aspirations.
How can Canadians get a better grasp of debt problems?
Write down all debts:
Tracking debts to gain a complete picture of what’s owed is a good first step. This exercise will allow credit-constrained Canadians to formulate the best strategy to reduce or eliminate debt.
Monthly budgeting is crucial:
Creating a budget and sticking to it can have very positive outcomes. Make sure to include both fixed expenses like car and mortgage payments, variable costs and debt repayment. Get creative and find new ways to reduce spending.
Pay on time, pay in full (if possible):
Choosing to pay credit card bills on time and in full goes a long way. Twenty-five per cent of those surveyed by Loans Canada admitted they believed that making the minimum credit card payment would prevent them from paying interest. It doesn’t. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt:
Pay off high interest loans first - refinancing or consolidating high-cost loans could result in lower payments.
Collingwood residents looking to improve their financial well-being should consider increasing their financial literacy. Loans Canada’s research indicates that being confident about financial knowledge does not ensure protection from the pitfalls of bad financial behaviours.
"Government and private institutions offer a lot of free financial literacy resources available to all Canadians, explains Loans Canada Chief Technology Officer, Cris Ravazzano. “For example, Canada.ca has an entire section dedicated to money and finances with great information that everyone 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.