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
A recent Loans Canada study conducted with 1665 credit-constrained Canadians confirms the saying, people don’t know what they don’t know. Over 60 per cent of the 1665 survey subjects showed confidence in their financial knowledge, but when asked about their financial habits, their performance told a much different story.
Of those surveyed felt confident about their financial knowledge, they admittedly are not tracking their spending habits or paying their credit card bills in full every month.
Many of the respondents also are not saving regularly.
And the most surprising survey finding? Canadians who believe they are financially literate 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 is not a difficult task. Data indicates that the average Canadian consumer debt is close to $8,500, while approximately 12 per cent of Canadians have consumer debt over $25,000.
Many Canadians, including those in Prince George, accumulate large debt due to bad spending habits combined with not tracking expenses or paying credit card bills in full each month.
Lacking basic financial literacy and management skills often leads to acquiring more debt and creates challenges for those looking 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 effects of financial illiteracy and the consequences of debt
Prince George residents who lack financial knowledge may find themselves drowning in debt. Debt can lead to poor credit ratings and derailed savings plans, which makes it difficult to meet future goals or aspirations.
How can Canadians get a better grasp of debt problems?
Track all debts: A detailed debt list will make it easier to identify financial priorities and determine
the best strategy to reduce or eliminate debt.
Maintain a monthly budget: Outlining monthly financial obligations including car and mortgage payments, variable costs and debt repayment, is an important step towards financial well-being. 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: Putting money towards high-interest rate debts is a good idea. Refinancing or consolidating high-cost loans may lead to a lower payment.
Increasing knowledge around financial literacy helps to achieve financial wellness. Loans Canada warns that being confident about financial knowledge does not protect from the pitfalls of bad financial behaviours.
“Free financial literacy resources are accessible 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.