The financial decisions made each day by millions of Canadians can have significant impact. Personal debt and finance are not easy to address, especially if there is a lack of financial knowledge.
People don’t know what they don’t know
Nearly 70 per cent of 1665 survey subjects showed confidence in their financial know-how, but when asked about their financial habits, their performance told a very different story. That’s what a recent study conducted by Loans Canada revealed.
Nearly half of respondents who claimed to feel good about their financial literacy also admitted to not tracking their expenses or spending habits or paying their credit card bills in full every month.
When it comes to regular savings, this is not happening.
The survey also showed that people who claim to be financially knowledgeable are typically in more debt compared to those who confess their financial literacy is lacking.
Read all of LoansCanada.ca’s findings here.
Why are Canadians in Debt?
Debt is typically a direct result of spending too much money. Loans Canada reports that the average Canadian consumer owes $8,500 in consumer debt, not including their mortgage. While around 12 per cent have consumer debt over $25,000.
Bad spending habits can cause debt to accumulate very quickly, making it harder to pay off. Not tracking expenses or paying card bills in full each month also can contribute to large debt.
Canadians can be lured more easily into debt when they lack basic information on how to manage finances and financial literacy.
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 and the consequences of debt
For Orillia residents, the consequences of financial illiteracy can be devastating and lead to high debt levels, poor credit ratings and derailed savings plans. This in turn creates barriers, making it hard to meet goals and aspirations.
How can Canadians get a better grasp of debt problems?
Make note of debts:
Start a list all debts to see clearly what’s owed. This assessment will help determine next steps.
Monthly budgeting is crucial:
Develop a budget and include care and mortgage payments, variable costs and debt repayment. Come up with a plan to reduce spending.
Pay on time, pay in full (if possible):
Many Canadians believe making the minimum credit card payment will prevent interest from being charged. False. Pay on time and in full to avoid interest payments and potential credit score damage.
Lower the cost of debt:
Avoid larger interest payments by choosing to pay down debt carrying the highest interest rate. Refinance or consolidate high-cost loans to achieve lower payments.
Orillians can improve financial wellness through financial literacy. Loans Canada’s research indicates that confidence related to financial knowledge does not protect from the pitfalls of bad financial behaviours.
"There are a lot of free financial literacy resources available to Canadians, both from the government and private institutions,” explains Loans Canada Chief Technology Officer, Cris Ravazzano. “This includes a whole section on Canada.ca 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.
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