They say knowledge is power. Apparently, this is truly the case when it comes to debt freedom, according to a new survey released by Manulife Financial. Survey results suggest that many homeowners suffer from a “gap in knowledge” when it comes to their finances.
"I think a common assumption is that managing debt and day to day finances is easier and less complex than other aspects of personal financial planning," said Doug Conick, President and CEO of Manulife Bank of Canada. "However, the knowledge gaps we found shed light on why Canadians struggle to reduce their debt burdens, despite consistently reporting that the reduction of personal debt is a high financial priority. Without a foundational understanding of personal finance issues, making effective financial choices is undoubtedly challenging."
For example, more than one in three Canadian homeowners is unaware of the fact that interest rates are currently sitting at historic lows. What this suggests, is that the disconnect between what is actually happening, and what many Canadians’ perceptions are about financial circumstance may present a barrier in actually reducing or eliminating debt load.
According to the report, “More than one in three Canadians aged 30-39 incorrectly responded that today's rates were about average or relatively high. At the same time, more than half of this group expects to be debt-free by the time they're 50 while fewer than one in five respondents aged 50-59 actually report being debt-free. “
“It's concerning that many younger homeowners believe today's interest rates are normal when, in fact, they are at near historic lows," said Conick. "These younger homeowners may be taking on more debt than they will be able to afford if interest rates rise. While there is no expectation we'll see rates like those of the 1980s, a rise of even a few percentage points could have a significant financial impact on this younger generation of Canadians."
Only 48% of respondents had reduced their debt over the last 12 months; less than half said that they were happy about their progress to date, not surprisingly. Most do indicate though, that debt reduction is at the top of the priority lists.
What is seemingly missing as well, according to respondents, is financial guidance. Many are missing out on debt reduction strategy assistance, as well as access to current market information and products that would assist many in achieving goals of debt freedom.
"On the whole, the results show that Canadians are focusing on the right kinds of issues when it comes to their finances, but are missing or misinformed about key debt management concepts, making the achievement of their goals challenging," said Mr. Conick. "For those committed to reducing their debt, a conversation with a financial advisor could make a big difference. With their training and experience, financial advisors can provide holistic expertise and counsel on personal finance and personal finance products, leading to more strategic and effective debt management."
Source: PropertyWire.ca - September 13/11