High Summer Spending Puts Additional Debt Repayment Pressures on Canadian FamiliesSep 29, 2015
This summer, as interest rates reached their lowest in decades, personal debt levels climbed to record highs. According to an BDO Canada Limited/Ipsos Reid poll, one-in-three Canadians increased debt levels since May, and less than 25 per cent have spent less than they did last summer. Less than half of Canadians kept to their summer budget, putting greater pressure on many Manitobans. As the borrowing rate increases and the economy continues to struggle, many families face the risk of insolvency. Without the use of effective debt repayment strategies, many could be facing long-term financial distress.
In a year where Canadian debt levels have skyrocketed by 22 per cent, it comes as no surprise that insolvency rates have risen by 1.2 per cent. What may come as a surprise, at least to many Manitobans, is that the number of insolvencies in Manitoba is up almost 11 per cent, ten times the Canadian average. To make matters worse, a recent BMO poll found that 59 per cent of people believe they can pay off their debt in the next five years, with 46 per cent not worried about current debt levels and planning to borrow more. The lack of concern regarding debt repayment in a precarious economy suggests a lack of true financial understanding. Even at current debt levels, any unanticipated financial shift, such as a hike in interest rates, could spell financial disaster for some Canadians who have high debt levels or who are struggling with low wages and high living costs. For some demographic groups, such as parents, the risk is especially pronounced.
In a province where only 42 per cent of residents were able to stick to a summer budget this year, Manitoba parents were found to be twice as likely as their childless peers to exceed their summer spending plan. Parents’ desires to provide summer opportunities for their kids seems to have won out over solid financial practicality, as their stretched spending overextended their budgets. Parents carry higher financial risk in large part due to the added expenses that accompany raising a child—a shocking quarter of a million dollars according to one source. The cost skyrockets for families who don’t make and follow budgets, lack critical financial judgement and struggle with basic financial skills.
Unfortunately, a large portion of Canadians rate low when it comes to financial literacy. A national initiative to draw attention to the need for increased literacy and to provide resources for all age groups was implemented by Financial Consumer Agency of Canada (FCAC), which provides financial education online and in cooperation with several like-minded organizations.
With dependants to consider, parents carry a heavy burden to create financial security for their families and to understand their finances while supporting their children’s basic financial literacy. Current market fluctuations challenge many families to keep their current debt levels manageable. Stress-testing finances can provide insight into a family’s future financial stability under changing conditions and allow parents to be proactive about their money management and debt repayment. The FCAC’s wide range of online tools provides an accessible method of increasing financial skills and understanding for parents and families.
As a parent, do you think that increased financial literacy would help you to better manage your family’s finances? #BDOdebtrelief #CountMeInCA