Canadians are faced with making financial decision every day, and the outcomes of these decisions can affect their lives in a very significant way. Dealing with debt and finance can be challenging, and while it would be nice to know the right answers, this isn’t always the case.
People don’t know what they don’t know
A recent study conducted by Loans Canada surveyed 1665 credit-constrained Canadians. The results confirm the adage, people don’t know what they don’t know - study also showed that nearly 70 per cent of survey subjects demonstrated confidence in their financial know-how, but when asked about their financial habits, their performance told a completely different story.
The survey revealed that fifty per cent of respondents said they felt good about their financial literacy, however, are not tracking their expenses or spending habits. The same people also admitted that they aren’t paying their credit card bills in full every month.
And the most staggering Loans Canada finding? Those claiming to be financially knowledgeable are typically further in debt than people who admit their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
Canadians who lack basic information on how to manage finances, can be more easily lured into debt, which makes it challenging to climb out of a personal financial crisis.
Spending money is easy for many people. In fact, the average Canadian consumer finds themselves drowning in at least $8,500 in consumer debt, which doesn’t include their mortgage. While around 12 per cent have consumer debt over $25,000.
When bad spending habits are combined with not tracking expenses and not paying credit card bills in full each month, debt can accumulate rapidly and be difficult to pay off.
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 and the devastating effects of financial illiteracy
Financial illiteracy has led to serious consequences for many Canadians, including those in Timmins. Unmanageable debt levels, poor credit ratings and derailed savings plans can create barriers making it difficult 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 to get the complete picture of what’s owed makes it easier to develop a strategy to reduce or eliminate debt.
Monthly budgeting is crucial:
Find news ways to reduce spending by developing a monthly budget, which includes both fixed expenses like car and mortgage payments, variable costs and debt repayment.
Pay on time, pay in full (if possible):
A quarter of Loans Canada survey participants believe that making the minimum credit card payment prevents them from being charged interest. This assumption is false. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt:
Larger interest payments can be avoided by paying down high interest rate debts first. Exploring refinancing or consolidating options to deal with high-cost loans may lead to a lower payment.
But there is light at the end of the tunnel. Canadians wanting to improve their financial well-being can do so through financial literacy. Don’t be fooled by false confidence when it comes to financial knowledge – it does not protect from the pitfalls of bad financial behaviours.
"Lots of free financial literacy resources are available to Canadians, thanks to both government and private institutions,” explains Loans Canada Chief Technology Officer, Cris Ravazzano. “For example, Canada.ca has an entire online 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.