Canadians rate themselves as poor when it comes to financial literacy, according to a recent Rates.ca survey. Although 92% of Canadians use their credit card every month, 46% consider themselves to have a poor financial understanding of the product. Not only that, but only half of Canadians are familiar with the types of mortgages available to them and 61% think they have insufficient knowledge of mortgages.
The Rates.ca survey also found that 94% of Canadians believe that a better understanding of financial literacy is needed in schools.
The lack of financial literacy in Canada may be impacting debt management and savings across the country. These numbers highlight the need for more financial education.
Credit Card Confusion
More than two in three Canadians don’t know that credit card interest is calculated daily on the balance. With one in three Canadians admitting they were somewhat unlikely or unlikely to make the minimum credit card payment. Considering there are over 74 million active credit cards in Canada, this number is concerning.
This is how it adds up. Figures from TransUnion reveal that the average credit card balance is $4,265 in Canada; 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.
Canadians are not only uninformed about their credit cards. Just 60% of respondents are familiar with their credit score, with older Canadians more in the know. Eighty percent of consumers 65 and older are familiar with their credit score compared to 67% aged 18 to 24.
Only half of Canadians are familiar with the types of mortgages available to them. Yet, nearly the same percentage (43%) of Canadians say they are comfortable negotiating their mortgage online.
Men say they are more familiar with mortgage products compared to women, at 57 and 44% respectively. However, 90% of Canadians don’t know interest is charged semi-annually on a fixed-rate mortgage. Twenty-eight percent of respondents admitted to not knowing how interest rates are charged, and another 28% believe interest is charged monthly. The remaining respondents were split equally (17% each), believing interest is charged bi-weekly or annually.
Meanwhile, just 39% of Canadians know the minimum down payment on a mortgage needed to avoid paying government insurance is 20%. That means 61% of Canadians are unaware they can save money when purchasing their home if they are able to put down at least 20%.
How Can You Improve Your Financial Literacy?
Whether it’s a credit card or a mortgage, Canadians should shop around before signing a contract. Before making a commitment, you should be aware of the product’s interest rates and the possible repercussions of missing a payment.
Financial products can be confusing, especially for first-time homebuyers or consumers looking to borrow money. It is advisable to compare options and speak with a mortgage broker or a financial advisor to help answer your questions.
Using tools like the Rates.ca Mortgage Affordability Calculator can help Canadians realize how much they can really afford. With a realistic budget and a better understanding of how financial products work, Canadians can improve their financial literacy and comfortably manage their debt.