November is Financial Literacy Month, and it hasn’t come at a more relevant time. Between inflation and high interest rates, it’s becoming harder and harder for most Canadians to stay on top of their finances.
Headline inflation declined to 3.8% in September, a 3.1% dip from the same time last year. However, on a micro level, it doesn’t look like things are getting easier. We’re forking out much more for day-to-day expenses, and as a result, many Canadians are spiraling into household debt. The current economic condition is so precarious that it’s prompted the National Payroll Institute (NPI) to call it a “financial storm.”
According to a Leger survey, conducted on behalf of RATESDOTCA, 35% of homeowners are concerned about paying their mortgage payments over the next three years, and those who express greater concern are likely to be in the age group of below 55 and are visible minorities.
Meanwhile, half of homeowners say they can afford $500 or less in extra monthly costs, while 11% report being unable to cover their monthly expenses without dipping into savings or credit. Lastly, almost one third (31%) of respondents do not feel confident about their economic future.
In the spirit of Financial Literacy Month, let's take a closer look at how Canadians are feeling about their economic future and what can help them take greater control of their finances.
35% of homeowners are concerned about paying their mortgage over the next three years
Thanks to unprecedented interest rate hikes, 35% of homeowners are concerned about paying their mortgage over the next three years. Of these respondents, 51% are younger than 55. While a younger demographic may be making less or have fewer savings, Jacqueline Porter, an Ontario-based financial planner explains that the pace of affordability is also rapidly changing.
Someone who bought a home on a variable rate mortgage, for instance, is now seeing their mortgage payments double or triple. “Interest rates were moving at a breakneck speed and Canadians weren’t prepared for it,” she explains. “Particularly, as they were coming out of zero interest rate scenarios.”
Meanwhile, 59% of homeowners surveyed stated that they are not concerned about their ability to pay their mortgage over the next three years. Of these, 72% are above the age of 55.
Financial concerns are hitting visible minorities harder
Visible minorities are more likely to be concerned about making their mortgage payments (53%) compared to their white counterparts (32%). One reason for that, according to Porter, is that visible minorities typically earn less than their counterparts and are also more susceptible to predatory debt.
“It ends up being a cycle of making less, having less money left over to service debt, and being more vulnerable to failing to keep up with payments, and eventually, bankruptcy,” she says.
Additionally, 61% of white respondents reported feeling not concerned about being able to pay their mortgages over the next three years, while only 45% of visible minorities said the same.
Quebecers seem to be doing better than rest of Canadians
The data also highlights a regional disparity. Quebecers generally seem to be doing better than rest of Canadians – 70% of Quebecers are not concerned about making their mortgage payments over the next three years, compared to 55% of Canadians outside of la belle province who report the same.
There may be a few factors that contribute to their relative security. The first is that Quebec has an average home price of $499,911, which is much lower than that of Ontario and Vancouver (though slightly higher than Alberta and other Atlantic provinces).
Quebec also has certain incentives and reforms that few, if any, provinces have, including more affordable tuition and subsidized childcare costs.
Childcare costs Quebec parents around $181 per month, at $8.31 a day, the lowest rates in the country by far. For comparison, parents in Ontario pay around $1,600 per month for a daycare spot for a single toddler.
Porter specializes in making finance accessible to women. In addition to other factors, she notes that childcare is a crucial component of financial independence.
“The ability to become financially independent may by thwarted by not having childcare,” she says. “Perhaps people in Quebec feel more confident because having childcare means women can hold a full-time job and have more flexibility in seeking out better paying jobs.”
Half of Canadian homeowners say they can afford only $500 or less in extra monthly costs
Half of Canadian homeowners say they can afford only $500 or less in extra monthly costs like an unanticipated car repair bill, a few extra grocery runs, or a big plumbing job.
Unsurprisingly, the percentage of respondents who can comfortably afford additional payments decreases as the cost of those payments increases – 16% can afford an extra expense in the range of $500 to $1,000, whereas only 13% can afford an expense that’s more than $1,000.
Also, as expected, those who can afford additional expenses of $1,000 or more belong to a household income bracket of $100,000 or above (19%). Only four per cent of those making less than $60,000 can meet this high additional expense.
The conventional advice from personal finance experts is to put aside three to six months’ expenses towards an emergency fund. But in this turbulent economy, for many people, an unexpected $500 bill can seriously set them back.
11% of homeowners unable to meet their monthly expenses
Perhaps most concerningly, 11% of homeowners are unable to cover their monthly expenses and are either dipping into their savings accounts or using credit to do so.
Of all homeowners surveyed, four per cent are covering their bills by dipping into their savings and three per cent are relying on credit products, and another three per cent are using a combination of savings and credit products to cover the gap. Those who are younger than 55 years are twice as likely to dip into their savings to cover their expenses (6%) versus those who are older (3%).
Earlier this year, Equifax Canada reported that consumers are spending more on their credit card. They also note that delinquency rates are rising as some consumers struggle with affordability, and younger and lower-income individuals are having a harder time making payments. As things get tougher, Porter explains that relying on high-interest credit is an unsustainable way to manage finances.
“Most people don’t budget,” she says. “The difference goes on a credit card and they’re digging a deeper hole for themselves. A much more sustainable approach would be to look at one's circumstances by putting pen to paper and making lifestyle changes.”
31% of homeowners do not feel confident about their economic future
When it comes to longer term financial prospects, almost a third of homeowner's report feeling not confident about their economic future.
Porter notes that for many, inflation has offset any savings people may have made during the pandemic. Those who are back into the office, for instance, now have to pay a lot more for fuel, coffee, and lunch.
“With inflation rearing its ugly head, people are now thrust into the financial reality that everything costs more,” she says. “They’re spiraling out of control [on their finances] and are fighting on many different fronts.”
According to the survey, 31% of homeowners do not feel confident that they have enough money, with 22% reporting not feeling like they have enough to live comfortably, and 9% who don’t feel they have enough to take care of themselves or their family. Inflation may once again be hitting young people harder, as 36% under 55 report feeling less confident about their financial future versus the 26% who are over 55.
Conversely, out of the 67% homeowners who do feel confident about their economic future, nearly half feel “somewhat confident” that they have enough to live comfortably, but state that they may not be able to afford luxuries.
It's also not surprising that it’s the people who earn more money who feel most confident — 77% of those who make more than $100,000 in annual household income report that they feel confident about their financial future. Many more Quebecers feel more confident about their financial future as compared to their counterparts across the rest of Canada (76% versus 64%).
Take back control of your money this Financial Literacy Month
While there’s sadly little to be done about inflation or higher mortgage payments, education can help you make better financial decisions. According to Porter, money conversations do not usually happen in households where people are earning less and may already have the “cards stacked against them.”
Financial literacy, then, becomes all the more pertinent. November is Financial Literacy month and what better way than to start here?
- Plan to pay off your credit card debt: In her consultancy, Porter comes across many people who are reluctant to look at their finances because they don’t feel great about their circumstances. “But the idea is once you do it, you know what things look like and you can make a plan to move forward,” she explains. One way forward is to look at credit card debt and come up with a plan to pay off that debt. You can also consolidate your consumer debt to a balance transfer card, which will give you an interest-free grace period — but be sure to compare credit cards to make sure you’re getting the best terms for your situation.
- Challenge yourself: Challenge yourself to make lifestyle changes so that you can get used to living on less.
- Start small: To tide over the financial storm, it may be a good idea to start taking money out of your paycheck and putting it towards savings. She recommends individuals start small – even a $50 bill can add and make a difference when an unanticipated expense crops up.
An online survey of 1,010 Canadian homeowners (older than 18 years) was completed between October 20 and 23, 2023, using Leger’s online panel. No margin of error can be associated with a non-probability sample (i.e., a web panel in this case). For comparative purposes, though, a probability sample of 1,010 respondents would have a margin error of ±2.2%, 19 times out of 20.
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