Canadians are forced to make financial decisions daily. The results of these decisions can have major impacts on their lives.
And although it would be nice for Canadians to have the answers when addressing personal debt and finance, this isn’t always the possible.
Canadians don’t know what they don’t know
A recent study conducted by Loans Canada revealed that of the 1655 credit-constrained Canadians surveyed, nearly 70 per cent felt confident in their financial know-how. But when questioned about their financial habits, their performance told a much different story.
The study also showed that many Canadians have difficulty contributing to their savings.
And the most surprising Loans Canada finding? The people claiming to be financially knowledgeably actually had more debt than those who were aware their financial literacy was lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
Canadians are in debt because spending money can be too easy. Easy enough that the average Canadian consumer owes $8,500 in consumer debt, which does not include their mortgage. Twelve per cent have consumer debt close to $30,000.
Combine bad spending habits with not tracking expenses and not paying credit card bills in full each month, debt can accumulate very quickly and be difficult to pay off.
Without basic information on how to manage finances and financial literacy, not only can Canadians be more easily lured into debt but it can make 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.
Financial illiteracy and the consequences of debt
For Bradford residents, the cost of financial illiteracy can be crushing, leading to 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 improve their issues with debt?
Understand depth of debt:
Compile a list of debts to gain a complete picture of what’s owed. This process will help determine the best strategy moving forward, to reduce or eliminate debt.
Stick to a monthly budget:
Prepare a monthly budget factoring in both fixed expenses like car and mortgage payments, variable costs and debt repayment. Weed out the needs and wants and explore new ways to reduce spending.
Pay on time and in full (if possible):
To avoid potential credit score damage and huge interest payments, pay credit card bills on time and in full. Close to 25 per cent of Loans Canada survey participants believe that making the minimum credit card payment saves them from being charged interest. This is not the case.
Lower the cost of debt:
Pay down high-interest debt first. Refinancing or consolidating high-cost loans can help as they may lead to a lower payment.
Canadians seeking to improve their financial well-being will need to first improve their financial literacy. Research shows that being confident about financial knowledge does not protect from the pitfalls of bad financial behaviours, according to Loans Canada.
"Canadians are encouraged to access the free financial literacy resources available, 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 tips 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.