Photo: James Bombales
More than half of Canadians say they have good knowledge of debt management, yet household debt has reached record highs in Canada, says Manulife Bank of Canada.
According to the bank’s new survey, 60 per cent of Canadian homeowners claim they are educated about debt management compared to 42 per cent of renters.
But many Canadians who hold a mortgage don’t believe they’re in debt at all.
"Three in ten Canadians don't consider a mortgage as debt and two out of ten don't even consider car loans as debt,” Rick Lunny, President and CEO of Manulife Bank, tells BuzzBuzzNews.
Manulife surveyed roughly 2,400 Canadian homeowners and renters in October to better understand Canadians’ knowledge of debt management and their attempts to pay off debt.
There are some Canadians who are well aware that mortgages, along with any type of borrowing, are considered debt. Twenty-five per cent of Canadians say they must be free of all debt before claiming they’re debt-free. The different types of debt outlined in the survey included credit cards, vehicle loans, lines of credit and student loans.
When comparing homeowners to renters, the primary source of debt for homeowners are mortgages, while debt for renters comes from personal loans and credit cards.
The lack of social literacy regarding debt management is evident in how little homeowners know about their mortgages and how they’re selecting mortgages, says Lunny.
According to the survey, one in ten homeowners are not sure who their mortgage provider is. Mortgage holders also reported not having very good knowledge of critical information, including the consequences of missing a mortgage payment.
Fifty-six per cent of Canadians say the most important factor when choosing a mortgage is the interest rate, beating out other factors such as the ability to pay down their mortgage as quickly as possible and how much interest they’ll pay over the life of the mortgage.
"They buy a home and they take out a mortgage. They're focused solely on the face interest rate and they don't really make it their business to understand the terms and conditions, and this is probably the largest debt and biggest purchase they're ever going to make in their lifetime,” says Lunny.
Many Canadians say their top priority is to be debt-free. In fact, 64 per cent stated this in the survey. However, over the past year only 31 per cent of Canadians actually met their debt reduction goals.
According to Lunny, the survey results indicate that Canadians either don't have the knowledge they think they have or they're not applying that knowledge in their own personal finances.
"It seems it's a bit like dieting where people tend to do it, but in actual fact they're not doing it because the statistics don't support that,” says Lunny.