Millions of Canadians, including Kamloops residents, are impacted by their financial decisions on a daily basis. And while it would be nice for everyone to know the right answers when addressing personal debt and finance, this isn’t always the case.
People don’t know what they don’t know
Loans Canada conducted a recent study of 1655 credit-constrained Canadians, which revealed close to 70 per cent of those surveyed perceived themselves as financially literate, however when questioned about their financial habits, their performance told a much different story.
While over half of the survey respondents felt confident about their financial literacy, they admittedly are not paying their credit card bills in full each month or tracking their expenses.
Many are not saving regularly.
And the most surprising Loans Canada finding? 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?
Spending money isn’t difficult. While the average Canadian consumer debt load is hovering around $8,500, which doesn’t include their mortgage, approximately 12 per cent of Canadians have consumer debt over $25,000.
Bad spending habits combined with not tracking expenses or paying credit card bills in full each month can lead to debt – quickly. The larger the debt, the more difficult it becomes to pay off.
Canadians who lack basic financial literacy and management skills often find themselves in debt, making it challenging 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 devastating effects of financial illiteracy
Financial illiteracy amongst Canadians may lead to overwhelming consequences such as 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 grasp on their debt problems?
Keep track of all debts: Listing debts will give a clear picture of what’s owed. This assessment will help form the best strategy to reduce or eliminate debt.
Maintain a monthly budget: To reduce debt, creating a monthly budget, which includes 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): Loans Canada survey participants indicated they were under the impression that making the minimum credit card payment avoids interest charges. It doesn’t. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt: Pay down high-interest rate debts first. Refinancing or consolidating high-cost loans may lead to a lower payment.
Financial well-being is achieved by improving financial literacy. Loans Canada’s research shows that being confident about financial knowledge does not protect from the pitfalls of bad financial behaviours.
“Residents can find lots of free financial literacy resources, made available from 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.