Wednesday, April 8, 2015

What People Think and How they Act can be Very Different

A new survey for the Chartered Professional Accountants of Canada suggests Canadians may harbour false notions about their financial savvy and security. 
The CPA assessed attitudes from before and after the recent drop in oil prices and interest rates. The accountants say, that while Canadians rank themselves highly for financial discipline, few households are planning for potential changes to the economy.
According to the survey 79% of respondents say they are staying on top of their payments, while 59% say they are living comfortably and are doing alright financially. This may sound great but further questioning reveals another story. 
The CPA survey indicates: 
 - 53% of households do not save on a regular basis.
- 51% say they do not have an emergency reserve fund apart from their "regular savings".
- 60% (which the CPA characterizes as "only") of households say they pay off a portion of their debt on a regular basis.
- 41% of households with a HELOC (Home Equity Line of Credit) in other words a line of credit secured on their home's equity,  did not make regular interest and principal payments to repay their outstanding balance. 
 “It may be a matter of perception,” explains Kevin Dancey, FCPA, FCA, president and CEO, CPA Canada. “Factors such as lower interest rates, cheaper gas and a strengthening U.S. economy may have some people thinking things are just fine. However, no matter what happens with the economy over the coming months many households remain vulnerable because of high debt levels.”

 Key economic indicators reinforce the financial vulnerability of many Canadian households:
  • total household debt reached a record high of $1.82 trillion as of Q4 2014
  • the debt-to-income ratio reached an all-time high of 163 per cent in Q4 2014, meaning that for every dollar of income, Canadians carried $1.63 in debt
“Canadians should be taking steps now to build their nest eggs and improve their ability to service debt obligations in the event of future economic shocks,” says Joy Thomas, FCPA, FCMA, executive vice president, CPA Canada. “Economic uncertainty lingers and borrowing rates will rise at some point. Canadians should be planning ahead and be prepared for what tomorrow brings.”
   If you work in the oil patch or a related industry; or if you are feeling financially vulnerable the best thing to do now is to speak with a mortgage broker about lowering your mortgage payments or moving your high interest debt into a lower interest product to make paying it off easier if your situation changes.