Poll results suggest concerning lack of knowledge with respect to several areas of financial literacy
A majority of credit-challenged Canadians consider themselves as financially knowledgeable, but their actual decisions and behaviour may show something entirely different.
In a recent study of 1,665 credit-constrained Canadians conducted by Loans Canada, two thirds of respondents (67%) considered themselves as financially knowledgeable, claiming that they make informed decisions with respect to their finances.
But after asking about their specific financial behaviour and decision making, the study found that among those who self-identified as financially knowledgeable:
- 43% are not tracking their expenses or spending habits;
- Two thirds are not paying their credit cards in full every month;
- 72% are not saving on a regular basis;
- 44% believe lenders are allowed to ask for upfront payments on personal loans; and
- 30% believe paying the minimum amount due on credit card bills prevents them from being charged interest
A deeper dive into the behaviours of credit-challenged Canadians revealed other concerning trends.
For 46% of respondents, loan stacking — taking on multiple loans from multiple lenders — is a way of life. That means they face greater risk of getting multiple credit hits, defaulting on debt, and violating loan terms. When asked why they stack loans, 43% said they did it to make ends meet, while 25% said they did it for emergencies.
Nearly four tenths of respondents were not aware that payday loans are the most expensive form of borrowing, and a third incorrectly believe that cancelling old credit cards can help them build better credit. Possibly connected to those findings, 45% of credit-constrained Canadians carry high-interest debt via payday loans (45%) and credit cards (55%).
Many respondents also do not properly evaluate lenders before taking on debt. Thirty-eight per cent of respondents said they often skip out on comparing lenders before applying for a loan, and 60% said they rarely call a lender before they apply for a loan. Other missteps involving lack of preparation include not speaking with a financial advisor (70%), not talking to family or friends (65%), and not examining the lender’s website (36%).
“Our findings show that many Canadian consumers still have a lot to learn when it comes to their financial health, and we feel that financial education plays a very important role in financial decision making,” said Caitlin Wood, chief editor at Loans Canada.