Limited Financial Knowledge an Impediment to Debt Freedom

Consumer debt survey results indicate a significant number of Canadians lack an understanding of finance fundamentals, says Manulife Bank of Canada

  • More than 1 in 3 Canadian homeowners aged 30-39 are unaware interest rates are near historic lows

WATERLOO, ON, Sept. 12, 2011 /CNW/ - Younger Canadian homeowners don't realize how good they've got it, according to the most recent consumer debt survey conducted by Manulife Bank of Canada. The mistaken perception that current interest rates are the norm or even high may be setting them up for future financial difficulties and suggests their optimism for how soon they will be debt free is misplaced.

When asked how today's interest rates compared to historical norms, 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 Doug Conick, President and CEO of Manulife Bank of Canada. "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."

Debt freedom is a high priority, but knowledge of debt fundamentals is lacking 

Released today, this quarter's Manulife Bank consumer debt survey included a number of questions to gain an understanding of Canadians' attitudes and behaviour on consumer debt. Additionally, nine debt-related quiz questions were asked of those polled, to gauge the level of debt knowledge among Canadian homeowners, and of knowledge differences between age groups.

The survey results identified some common gaps in the knowledge of Canadian homeowners, including the current level of interest rates, factors that impact credit rating, the value of debt consolidation and the ability to calculate interest payments. For example, when asked how large of a mortgage they could take out on a $200,000 home without being required to purchase mortgage insurance, only 33 per cent of respondents chose the correct answer. Only 15% of respondents knew that interest on a loan used to purchase a non-registered investment is generally tax-deductible. Almost two in three incorrectly believed that changing jobs would impact their credit rating.

"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 Mr. Conick. "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."

The Manulife Bank survey showed that only 48 per cent of respondents had reduced their personal debt over the last 12 months, down from 57 per cent in last quarter's survey results.  Not surprisingly, fewer than half of respondents indicated they were very happy with how they had managed their debt and day-to-day finances over the past year.

Debt reduction continues to be a top priority for homeowners of all ages; 75 per cent of those polled said that being or becoming debt-free is one of their top financial priorities. In fact, young Canadians showed an increase of 13 percentage points in this category from last quarter's survey results, with 77 per cent now reporting debt freedom as a priority.

Time to seek professional help?

Notably absent from most Canadians' approach to debt reduction is consultation with a personal finance professional. More than half of those surveyed said that they have not spoken with their financial advisor about their debt and day-to-day finances in the past year. Yet, when asked who they would most likely turn to for financial advice, the largest number said they would approach a financial advisor.

"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."

The Manulife Bank of Canada poll surveyed 1,000 Canadian homeowners between ages 30 to 59 with household income of more than $50,000. It was conducted online by Research House between July 25 and August 6, 2011. For more information about Manulife One, ask your advisor for a referral or find your closest Manulife Banking Consultant by visiting www.manulifeone.ca

About Manulife Bank
Established in 1993, Manulife Bank was the first federally regulated bank opened by an insurance company in Canada. It is a Schedule l federally chartered bank and a wholly-owned subsidiary of Manulife Financial. As Canada's first advisor-based bank, it has successfully grown to more than $19 billion in assets and serves clients across Canada. Manulife Bank believes that effective debt management is a key contributor to financial health and that, by working with a Financial Advisor to create a customized financial plan that incorporates debt and cash flow management, many people could save money, become debt-free sooner and achieve more of their financial goals. It's for this reason that Manulife Bank offers its innovative deposit and loan products through independent financial advisors to help individuals make the most of their financial plan. Manulife Bank employs a team of specialists across the country that work with homeowners and financial advisors to design cash flow programs that are more effective, efficient and flexible. For more information about Manulife Bank products, speak to your financial advisor or visit manulifebank.ca. To learn more about Manulife One or find your local Manulife Bank specialist ask your advisor for a referral or visit manulifeone.ca.

About Manulife Financial
Manulife Financial is a leading Canadian-based financial services group operating in 21 countries and territories worldwide. For more than 120 years, clients have looked to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We provide asset management services to institutional customers worldwide as well as reinsurance solutions, specializing in property and casualty retrocession. Funds under management by Manulife Financial and its subsidiaries were Cdn$481billion (US$498 billion) as at June 30, 2011. The Company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com.

SOURCE Manulife Financial

For further information:

Media contact:
Michael May
AVP, Media Relations
Manulife Financial Canadian Division
519-594-2660

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