Canadians’ Number One Financial Priority is to Reduce or Eliminate Debt
BMO Wealth Management today issued a report on “The Personal Balance Sheet,” examining how Canadians adapt financially as they move through different life stages ΓöÇ balancing saving, investing, borrowing and spending to reach their financial goals.
The report found almost one third (30 per cent) of Canadians said their single most important financial priority is to reduce or eliminate debt. According to Statistics Canada, the debt-to-disposable income ratio was 165.3 per cent for the first three months of 2016. This is the amount Canadians owe for every after-tax dollar they earn, that is $1.65 for every dollar earned.
The BMO report found Canadians’ other financial priorities include:
- Effective investing and tax efficiency (24 per cent)
- Saving more (23 per cent)
- Budgeting (14 per cent)
- Spending on personal needs or goals (4 per cent)
Priorities shifted depending on the age of respondents. While the most important priority for Boomers (those aged 35-54) is to reduce or eliminate debt (34 per cent), the number one priority for Millennials (those aged 18-34) is saving more (26 per cent). Canadians aged 55 and over prioritize effective investing and tax efficiency (29 per cent).
“Financial needs and goals are always changing as people move from one life stage to the next, so it’s important to have the flexibility to adapt your financial strategy accordingly,” said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Wealth Management. “It’s a good idea to re-evaluate your financial plan on a regular basis to ensure your saving, investing, borrowing and spending are in balance as priorities shift over time.”
Conquering Financial Fears
The report also found that almost one third of Canadians (29 per cent) are concerned they will not be able to save enough to reach their financial goals. Millennials are more likely to have this concern (35 per cent) than Boomers (29 per cent).
Canadians reported the following events had made it difficult for them to save or invest to achieve their financial goals:
- Stock market losses (36 per cent)
- Failed business ventures (23 per cent)
- Divorce or separation (18 per cent)
- Financial loss on a property sale (13 per cent)
“These types of financial losses weigh on people’s minds and may make them more tentative, fearful or hesitant to prepare for the future,” said Mr. Buttigieg. “If you experience a financial setback, a financial professional can help you re-establish control over your finances by re-orienting your strategy. This can include introducing plans to reduce, consolidate or eliminate specific debts, or recommending different approaches to saving and investing to help you refocus your financial goals.”
BMO offers the following financial planning tips to Canadians at various life stages:
New Grads: Putting a plan in place to achieve future goals, such as saving for a down payment for a home or reducing outstanding student debt, is most important. By establishing a budget that focuses on saving and reducing borrowed amounts as opposed to spending on current wants, it may be possible to achieve these goals more quickly.
Parents: When gifts are given to children on birthdays and holidays, parents may wish to use this tradition as an opportunity to teach children about the importance of balancing between spending on current wants and the desire for future needs. Parents should also consider life, creditor, critical illness and disability insurance to protect their families in the event the unexpected occurs.
Retirees: Reducing expenses and having a consistent cash flow or income stream in retirement is important to help make accumulated savings last. This is a good time to consider scaling back on financial support paid to younger family members. If one’s goal in retirement is to travel, financial plans should be built with this expectation in mind ΓöÇ including the cost of travel medical insurance.
To view a copy of the full report, please visit: www.bmo.com/wealthreports.