- Originally from our sister publication, Advisor.ca.
Canadians fancy themselves as being debt-free in the next decade and are aggressively paying down debt, but a new study reveals they may be unrealistic about the age by which they expect to have paid their financial dues.
A recent CIBC poll notes that on average, Canadians holding some form of debt today feel they will be debt-free by age 55. However, it was found that only one-third (35%) of Canadians in the 55-64 age group today are actually debt-free.
Across all age groups, Canadians tend to believe they will be debt-free within the next 10 to 15 years. However, the survey pointed it may not be the case with many.
The poll reveals that 8% of respondents believe they’ll be into their 70s before their debt is paid off, while another 10% have no hope of ever being debt-free.
This disparity suggests that Canadians need to remain focused on a debt repayment strategy to ensure they are able to meet their target age for being debt-free, says Christina Kramer, executive vice-president, retail distribution and channel strategy, CIBC.
“Paying down your debt is no different from having a plan to put money away for retirement—you need a goal and a plan to get you there, and a conversation with an advisor can help you build a strategy and start making progress towards being debt-free,” she says.
The study shows Canadians still hold debt beyond the average age identified within their age group. For example, Canadians 25-34 believe they will be debt-free by age 44. However, it was found that among today’s 45-54 years old, only 18% report being debt free, suggesting many Canadians aged 25-34 may not be debt-free as soon as they hope.
“The passage of time alone is not enough to achieve the goal of paying down your debt,” says Kramer. “Canadians with a goal of being debt free would benefit from having a realistic plan in place that includes extra payments towards their debt and a strategy to minimize their interest costs.”
Provincially, Albertans see themselves as being debt-free at age 52, the youngest age in the poll. Atlantic Canadians and residents of British Columbia are less optimistic, targeting age 58 to be debt-free, the oldest age in the poll. Residents of Manitoba/Saskatchewan (age 56), Ontario (age 54) and Quebec (age 54) were found to be the closest to the national age average of 55.
“Being debt-free is a long term financial goal for many Canadians, and this poll suggests Canadians are actively looking ahead to the stage of life they will be in when they successfully pay off all of their debt,” says Kramer.
Canadians do see themselves as making progress towards debt repayment, with 61% saying they have made progress in this area so far in 2011. On the flip side, however, this could mean Canadians will continue struggling to save for retirement.
According to a new survey from ING Direct, half of Canadians can’t afford to put aside an additional $25 a week. That’s despite 41% admitting that doing so would make them happier, and get them closer to reaching their most important financial goal this year—paying off debt.
Saving an extra $25 extra per week equals more than $1,300 per year, not counting any interest or investment returns.
“Mounting pressures have made saving difficult, yet a lot of average Canadians appear unwilling to commit to the small daily changes that help save a little money each week, and lead to greater financial well-being,” says Peter Aceto, president and CEO, ING Direct. “Just like eating healthy and exercising, changing some everyday habits can go a long way to getting people closer to longer-term, important savings goals, like paying down debt and saving for retirement.”
Consumers must think about cutting back some of the unaccounted for daily spending which, although small, adds up significantly over the course of several months, he says.
“The point isn’t to cut out the daily indulgences that people enjoy, but to put a limit on them and find a healthy balance between spending and saving,” says Aceto.
The survey found that groceries are the biggest monthly expense for many Canadians (32%) aside from rent and mortgage payments. When asked how they would pay for an unexpected expense of more than $1,000, over a third (34%) of those surveyed said they would use their line of credit or credit card to cover it, only 11% said they would dip into their emergency fund.