Every single day, financial decisions impact millions of Canadians. And while it would be nice to know exactly what to do when addressing personal debt and finance, this isn’t always the case.
People don’t know what they don’t know
Loans Canada recently surveyed 1655 credit-constrained Canadians and found that nearly 70 per cent of those surveyed considered themselves financially literate. However, when questioned about their financial habits, their performance told a much different story.
The study also revealed many are not saving regularly.
And while nearly fifty per cent of survey respondents felt confident about their financial literacy, they admittedly are not tracking their expenses or spending habits nor are they paying their credit card bills in full every month.
And the most shocking reality? Those who believe 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?
Canadians spend money easily, and the people of Vancouver are no exception. The average Canadian consumer debt is looming at around $8,500, which doesn’t include mortgages, while approximately 12 per cent have consumer debt over $25,000.
Mix poor spending habits with not tracking finances and neglecting to pay off credit cards in full each month, debt can add up fast and become a challenge to pay off - Canadians who lack basic financial literacy and financial management skills often find themselves having difficulty climbing out of debt.
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
Canadians lacking financial knowledge and are in debt may find themselves with poor credit ratings and derailed savings plans which in turn creates barriers to meeting future goals or aspirations.
How can Canadians get a better grasp of debt problems?
· Keep track of all debts: Making a detailed debt list will give a clear financial picture. This assessment will help form the best strategy to reduce or eliminate debt.
· Maintain a monthly budget: Creating a monthly budget, which outlines financial obligations including car and mortgage payments, variable costs and debt repayment, is an important step. Get creative, determine needs from wants, and find new ways to reduce spending.
· Pay bills on time, pay in full (if possible): Many survey respondents believe that making the minimum credit card payment avoids interest charges. It doesn’t. Paying on time and in full helps avoid interest payments and potential credit score damage.
· Lower the cost of debt: It’s smart to pay down high-interest rate debts first. Refinancing or consolidating high-cost loans may lead to a lower payment.
By improving financial literacy, financial well-being can be achieved. Loans Canada’s research indicates that being confident about financial knowledge does not protect from the pitfalls of bad financial behaviours.
“Accessing free financial literacy resources is easy in Canada, thanks to both 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.