A new consumer debt survey shows that a lack of financial literacy skills may be intensifying British Columbians’ consumer debt binge.
More than half of British Columbians say that they are less than very confident in their understanding of the impact of interest rates on debt payments. Six in ten indicated that they are less than very confident about their ability to set and follow a budget.
When it comes to saving, the same number said that they are less than very confident in their ability to create a rain-day or emergency fund.
The most alarming thing about the record consumer debt levels in Canada is the lack of basic financial literacy skills to manage the debt indicates the survey prepared for the accounting and consulting firm MNP LLP. The survey showed that four in ten British Columbians are now $200 or less per month away from not being able to meet all of their bills or debt obligations each month, including one in five who say they already don’t make enough money to cover them.
“With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair. If you’re in this situation and you don’t have any savings and you don’t understand how interest rates impact payments, you take on more debt and even high-cost loans. That’s how so many end up in an endless cycle of debt,” says Prentice.
Four in ten British Columbians say that when it comes to their personal debts, they’d go back and do things differently if they could.
Three in ten say they are concerned about how much debt they have. One third of British Columbians expressed regret for the amount of debt they’ve taken on in their life, while nearly a quarter regret the debt they’ve taken on in the past year alone.
Debt denial is a big problem. Many feel they can handle it on their own, or they don’t know where to turn, or they are too embarrassed to get help.
If you are using credit to pay for basic expenses or to service other debts, it’s a sign you need professional help right away.
Other key poll highlights include:
Over half (52%) of Canadians are just $200 or less away from financial insolvency at the end of the month, down 4 points from last September.
Three in ten (31%) say they already don’t make enough money to cover their bills, down 2 points since September 2016, but up 3 points compared to February 2016.
One in ten Canadians (10%) are left with just $100 or less at the end of the month, down 3 points from September.
Nearly half (48%) agree they’re concerned about how much debt they currently have, down 4 points from September 2016.
Those who aren’t confident about their understanding of financial concepts (like credit scores, the impact of interest rates on debt payments, bankruptcy or insolvency) are significantly more likely to be concerned about their current debt (61%).
Half (49%) agree they regret how much debt they’ve taken on in their life (down 1 point), while nearly four in ten (37%) regret the debt they’ve taken on in the past year alone.
Those with a less confident grasp of financial matters are particularly likely to regret the debts they’ve accrued over the past year (46%) compared to those who have a stronger understanding (35%).
A majority of Canadians (58%) agree that when it comes to their personal debts, they’d go back and do things differently if they could.
Canadians who aren’t particularly confident about their financial knowledge (67%) are more likely to want to go back and do things differently.
The vast majority of Canadians are not very confident in their financial planning abilities.
Fifty-five per cent are less than ‘very confident’ in their ability to pay down debt while 60 per cent are less than very confident in their ability to set and follow a budget.
Dean Prentice is a licensed insolvency trustee for MNP.