The Steep Cost of Financial Ignorance

Thursday, June 29, 2017 - 22:17

Money Management


In an article recently posted by CBC called ‘We used to be savers’: Why Canadians Ignore Warning Signs About Debt, it was stated that despite constant warnings about personal debt levels, Canadians are continuing to borrow money at alarming rates. This isn’t news to most people, but what’s important to know is why this is happening.

If you had to pass a test to prove you could handle money before you could get your next paycheck — the way you have to pass a test to prove you can drive a car — would you get paid? The sad truth is that millions of us wouldn't. When it comes to managing money, Canadians young and old are failing. Now, obviously no one’s paycheck will ever be determined by their spending habits, so it’s important that we learn how to manage our money so debt levels don’t continue to rise.

In the article aforementioned, it explains that the reasons why debt levels may be rising are the following:

1. Blissful financial ignorance

With young adults acquiring more debt through rising education costs, more governments boosting access to financial services and changing social security systems that make retirement planning an ever bigger burden on an individual, financial knowledge becomes increasingly vital – but many people would rather be kept in the dark. If you don’t see it, you don’t worry about it, so they say. The truth is, if your financial situation is ignored, you are really just digging yourself into a deeper hole. It’s important to stay on top of your financial situation. Learn how to increase your finances, or how to pay off debt quicker or how to invest your money accordingly. Trust me. You may think that being ignorant is a good idea for now, but in the future, you will regret that decision. It’s never too late to start taking control of your financial situation.

2. Economic incentives to keep borrowing

With interest rates at all-time lows and the hot Canadian real estate markets we’ve been experiencing many Canadians are actually being rewarded for borrowing. That may be the case, but it can also backfire. Be very careful when it comes to borrowing. Seek advice from several professionals before borrowing. Many banks tend to dangle carrots in front of our faces with flashy credit cards with fantastic interest rates (for the first few months) and great rewards. But if you don’t need that credit card, you shouldn’t accept it. It’s just one more way that you can find yourself getting further into debt. You may say that it’s just for emergencies, or you’re just using it for the points, but you never know what other carrots will be dangled in front of you that may force you to use the credit card for purchases you didn’t think you would ever make.

3. Complex subconscious attitudes towards debt

People are justifying their debt levels any way they possible can. For example, if the borrower and lender are in an agreement, and the agreement is being maintained, people may not consider it debt. People who have never had debt, but have now started taking on some debt, may have had strong negative opinions about debt in the past. But once they take on some debt, their opinions on the subject morph so that debt is now seen as tolerable. This type of justification happens in many aspects of life, so I know you’re familiar with this concept. From the outside looking in, you know it’s wrong, but when you’re in the situation, it’s hard to see the bigger picture. In order to avoid falling into this trap, make sure you have annual (at least annual) appointments with a financial advisor or planner. They will be able to steer you in the right direction and may be able to talk some sense into you if you find that your views on debt have been spiraling out of control.

If you’re in debt and need some help, contact our office today. We are open late and on weekends to meet your needs.