Survey: Risky financial behaviours keeping Canadians in debt
Insolvency practice of accounting firm MNP probes Canadians' money mistakes
Calgary, AB, March 2, 2020 — A survey conducted by Ipsos on behalf of MNP Ltd. helps identify some of the costly money mistakes Canadians are making that could be contributing to the mounting consumer debt challenges across the country. From making only minimum payments to borrowing money they can’t afford to pay back, the survey found that over half of Canadians (53%) admit to engaging in what debt experts consider risky financial behaviours over the past year.
“Things like paying only the minimum balance, making impulse purchases and taking on debt you can’t afford to service are risky behaviours because they can trap people in an endless cycle of debt that can be nearly impossible to get out of,” says Grant Bazian, debt expert and president of MNP Ltd., the insolvency practice of Canadian accounting and consulting firm MNP LLP.
Paying only the minimum balance on debts was the most common risky behaviour among Canadians last year. One in five (21%) said they made only the minimum balance on their credit card. While those across the country were guilty of this to some degree, residents of Saskatchewan and Manitoba (28%) and Alberta (26%) were the most likely to confess to doing so. Those with children in the household (33%) were also more likely to be only making minimum payments on their credit card. Just under fifteen (14%) per cent of Canadians said they paid only the minimum balance on a line of credit last year.
“For some, it might be out of recklessness or impulsivity, but for others it is simply out of necessity. They are just having a tough time making ends meet, and are making questionable money choices in a desperate attempt to stay afloat,” says Bazian. Cash-strapped, already saddled with debt and struggling to navigate, about one in ten (12%) admitted to borrowing money that they know they can’t afford to pay back.
The second most common financial mistake among Canadians was being lured in by deals and special offers (15%). Those aged 18-34 years were the most likely to be seduced by deals (25%), as well as those in households with kids (20%). About one in ten said they spent money they shouldn’t have in order to ‘keep up with the Jones’ (11%), made a major purchase on credit without paying it off right away (11%) or bought something on credit that requires no payments for a while (8%).
“A lack of financial literacy may explain why many are engaging in financially risky behaviours. Some are in denial about their finances, and are living well beyond their means, while others are trying their best to get their debts under control but may not have the education or the support to do so effectively,” says Bazian. “Regardless of the reason behind the behaviours, one major contributing factor is the appetite for fast money without consideration of the longer-term ramifications.”
It seems that 2 in 10 (18%) Canadians are suffering the consequences of their money mistakes and have lost hope; they say that they will never be debt-free. Those in the Atlantic provinces were most likely to have this pessimistic view of their finances (25%), followed by Ontarians (21%). Those in British Columbia (13%) and Quebec (12%) are the least likely to think they will never be debt-free. Both Gen X and Baby Boomers (20%) were less optimistic than younger Canadians (12%), likely due to years of being saddled with debt, and the feeling that they are running out of time to pay it off.
Meanwhile, many Canadians believe they can be debt-free one day, but will still be struggling for years to come. Half (50%) estimate it will take approximately 6 years and 10 months to pay off their debts.
“A lot of people experience hopelessness when it comes to their debt. They don’t want to ask for help, they are embarrassed, they feel they are in it by themselves. And that exacerbates the problem,” explains Bazian.
About 3 in 10 (32%) Canadians are fortunate enough to say that they are currently living without debt obligations. This is more common among Canadians aged 55 years and older (41%) and 18-34 years (33%). Those aged 35-54 years are the least likely to say that they are currently living debt-free (21%), most likely owing to the financial obligations many in this age group have in terms of making mortgage payments, raising young children, and saving for the future.
“Living debt-free can be a reasonable goal for anyone – even the most severely indebted. Licenced Insolvency Trustees can help anyone struggling financially to make the most informed choices to deal with their debt,” says Bazian.
Published by Canadian Accountant from press release by MNP LLP.