According to a recent survey, Canadians rate themselves as poor when it comes to financial literacy … mediocre, at best.

When you work in the mortgage industry, you quickly understand that numbers don’t lie.  See below.

  • 92 percent of Canadians use their credit card every month.
  • 46 percent consider themselves to have a poor financial understanding of the product.
  • Only 50% of Canadians are familiar with the types of mortgages available to them
  • 61 percent think they have an insufficient knowledge of mortgages.
  • 94 percent of Canadians believe that a better understanding of financial literacy is needed in schools (agreed!)

It’s apparent that the lack of financial literacy in Canada is impacting debt management and savings across the country. These numbers highlight the need for more financial education.

Here are all of the metrics from the survey:

With Regard to Credit Cards

  • 67% of Canadians don’t know that credit card interest is calculated daily on the balance.
  • 67% of Canadians admitted they were somewhat unlikely or unlikely to make the minimum credit card payment.  Considering there are over 74 million active credit cards in Canada … umm … please, everyone, make your minimum payments, at the very least.  Below, is an example of why you should …
  • The average credit card balance is $4,265 in Canada (according to TransUnion); accumulating roughly $2.50 in interest per day, or just under $980 in interest per year. With close to an additional $1,000 being owed and accumulating further interest, debt can quickly get out of hand.
  • 44% of Canadians believe they have a poor financial understanding of credit cards.
  • Just 60 percent of respondents are familiar with their credit score.  Our advice is to check your credit report every 6 months.

Mortgage Misconceptions

Just 50% of Canadians are familiar with the types of mortgages available to them. But 43 percent say they are comfortable negotiating their mortgage online.  Scary, eh?

  • 62% of Canadians believe they have a poor financial understanding of mortgages.
  • 90% percent of Canadians don’t know interest is charged semi-annually on a fixed-rate mortgage.
  • 28% of respondents admitted to not knowing how interest rates are charged.
  • … another 28 percent believe interest is charged monthly.
  • The remaining respondents were split equally (17 percent each), believing interest is charged bi-weekly or annually.

THIS!  —> Just 39% of Canadians know the minimum down payment on a mortgage needed to avoid paying government insurance is 20 percent. That means 61 percent of Canadians are unaware they can save money when purchasing their home if they are able to put down at least 20 percent.

Whether you’re interested in acquiring a credit card or in need of a mortgage, you should call us before signing any contracts. Let’s be sure that you’re making the right decision now because the decisions you make today may not benefit you in the future, especially if you will be applying for a mortgage in the future.  Before making a commitment, you should be aware of the product’s interest rates and terms and fully understand them.

Indeed, financial products can be confusing, especially if you’re a first-time home buyer, or if you’ve never refinanced a mortgage, or are not inclined to keep a close eye on your credit report or credit card terms and conditions.  I’m getting the strong sense that this isn’t a federal oopsy.  Consider this:  if the vast majority of Canadians were financially adept, then our government wouldn’t be able to charge taxpayers loads of money to cover mortgage defaults, we wouldn’t accrue (as much) interest on our credit cards because we would pay off everything in full more regularly and perhaps we would strive to live within our means.

Some of these metrics are shocking, and others not so much.  We have questions.  We have thoughts.  We have questions around, and thoughts about, our government’s measures to prevent Canadian’s from acquiring too much (unaffordable) debt.

Should the mortgage financing guidelines be controlled by our government in an effort to protect Canadians (i.e. the B20 Rules, also known as ‘The Stress Test’) or should we be looking at other areas such as high interest products like credit card and lines of credit as a means of preventing Canadians from falling into financial distress?   The answer seems crystal clear to us, so stay close because I’ll be posting a follow up to this in the very near future.

As always, be sure to reach out to us if you need a new mortgage product or if you have any questions about your current mortgage.

Ciao for now!

 

Roy Perreault

Operations Manager

Your Money Matters Inc.