Update: This article was included in the Carnival of Personal Finance posted at the Ultimate Money Blog
Despite the recent interest rate hike to 0.75% by the Bank of Canada, new statistics show that despite the recession, homeowners feel good about their finances. Two-thirds of homeowners pay off their credit card balances each month (vs. 48% of non-homeowners) and a quarter of mortgage holders managed to make a lump sum payment or accelerated their mortgage payments in the past year, according to the Financial Fitness survey sponsored by Genworth Financial Mortgage Insurance Company Canada and conducted in conjunction with the Canadian Association of Credit Counselling Services.
The survey which interviewed 2,001 participants via telephone between March 4-10, 2010 found that four in ten (39%) respondents said they were able to pay all of their bills and save some money in the past year – a majority of those people were homeowners, including first-time home-buyers (those who bought a home within the last two years). Renters were more likely to say they were trying to save but didn’t feel they were getting ahead. Compared to the same survey undertaken in 2007 when the economy was booming, Canadians are even more likely now to say their financial fitness is good (55% vs. 50%).
Other findings of the survey:
- 49% of homeowners made down payments of 20 per cent or more on their purchase;
- 13% of homeowners say they are in great financial shape;
- 12% of homeowners said they have requested a credit report in the past 12 months.
As with regular exercise, there is always room for improvement and even financially fit homeowners can still benefit from further education and understanding of how best to manage their money.“A mortgage is easier to manage when people have good personal finance skills” said Henrietta Ross, Chief Executive Officer of CACCS. “But there is room to improve personal finance skills for many Canadians.”
Once again, we were incredibly fortunate (and grateful) to be granted the opportunity to interview Ms. Henrietta Ross, Chief Executive Officer of the Canadian Association of Credit Counselling Services. Check out the interview below …
Q: Ms. Ross, for homeowners, what are the implications of the 0.25% increase in the overnight interest rate made by the Bank of Canada on July 20, 2010?
A: For many Canadians, increases in interest rates place an unexpected burden on the cost of carrying debt. For homeowners especially with variable rate mortgages, facing an overnight .25% interest rate increase, means that these homeowners will need to find the means in their household budget to cover higher payment requirements. It is important that Canadians budget wisely and remember to save for unforeseen circumstances. If ever an unplanned expense arises, the prepared Canadian will be able to more successfully manage through the change.
Q: Compared to 2007, what do you think are the reasons for Canadians indicating that their financial fitness is good (55 per cent vs. 50 per cent)?
A: One of the reasons is that the recent on-line panel survey, while random in nature, generated a higher than average home ownership rate. It is important to know that in the survey results, 30% of respondents said that they try to save but don’t seem to be getting ahead. Another 11% said that they haven’t been able to achieve their goals or that they’re always falling behind. These findings indicate a need for more education about how to get in better financial shape.
Q: How large a part do emotions play in the handling of debt among Canadians? What tips do you have to harness these emotions and bring them under control when dealing with debt?
A: Financial issues can be very stressful for Canadians and emotions play heavily into the management of debt and finances. Financial stresses can be the most difficult of stresses to manage. It is important for individuals to realize that when faced with stress and anxiety related to money management that they are not alone. If a person is feeling trapped or feeling unable to cope with their situation, it is important to seek out an Accredited Not-For-Profit Credit Counselling Agency as quickly as possible. Speaking with a Certified Credit Counsellor can help to alleviate the stresses surrounding money management and facilitate a pathway forwards, overcoming their financial hurdles. Clients regularly report feeling relieved and hopeful after meeting with one of our Certified Counsellors and report that a large weight seems to be lifted from their shoulders.
Q: When increasing its overnight interest rate to 0.75% the Bank of Canada also scaled back its economic growth projections for the year to 3.5% from 3.7%, reflecting a slightly weaker profile for global economic growth and more modest consumption in Canada. What kind of impact might this have for homeowners and renters and their credit profiles?
A: Hopefully individuals will become more self aware of their current debt load and what they can reasonably financially manage into the future. An increase to interest rates is a call to action for individuals carrying large interest debt to proactively engage a plan to decrease their debt load as quickly as possible. A faster repayment plan can help save large amounts of accrued interest charges over time. By having a carefully laid out plan, individuals can become debt free faster by paying more than the minimum payment, reducing the amount of interest charged over an extended period of time and increasing their credit rating scores by making payments on time. To gain further information or to get assistance in building such a plan, you can contact one of our Accredited Not-For-Profit Member Agencies for support.
Q: Ms. Ross, with personal debt rising exponentially and personal savings decreasing, where do you see room for improvement in the financial plans of Canadians?
A: Canadians can improve their financial futures by learning to save more diligently and relying less on credit to sustain a lifestyle potentially beyond their current means. Credit is a great tool to assist us in obtaining many items, such as housing, a vehicle, etc. Keeping your credit in a healthy state is very important. Through increasing personal savings and creating a nest egg, situations or events arising requiring money beyond that available in one’s normal budget may not be as difficult to manage. With personal savings, an individual can borrow from themselves, thus not having to overextend themselves financially or face large interest charges. Canadians can become more financially fit if they can learn to save more for those rainy days.
Q: What are some tips that Canadians can use to take the worry out of money and get their debt situation under control?
A: The best tip for Canadians regarding the worry associated with debt obligation is to not be fearful of seeking qualified advice. Our Association prides itself in representing the leaders in Financial Counselling Education in Canada through stringent Accreditation and Certification practices of our Member Agencies. To find an Accredited Not-For-Profit Member Agency nearest you, please see our website or contact us via telephone at 1-888-746-3328.
Thank You, Ms. Ross!
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