Once again, I am worrying about the financial future of Canadians.
I'm not referring to the European debt crisis, the weakening world economies, the prospects for slow growth and the volatile stock markets. These are all real sources of concern, but I'm thinking more of things we can control.
Recently, study after study has shown a shocking number of people in Canada are trying to retire while carrying large amounts of debt. It appears our period of low interest rates has helped people decide this is a burden they can afford.
That may be true while interest rates are low, but it's a scary proposition if rates rise even two per cent. At that point, they would still be near historic lows, but a lot of people with variable interest rate loans would have seen the payments increase significantly.
Here are some of the statistics that have scared me lately. I have to give credit to Gordon Pape for compiling these (and to the various financial institutions that financed the research). I introduced Gordon recently at the annual Knowledge Bureau Distinguished Adviser Conference and was then shocked by what he had put together.
We know from Statistics Canada that, on average, Canadians owe about $1.51 for each one dollar of income, the highest level ever. Apparently, this trend is not restricted to young people. A recent poll sponsored by RBC showed only 56 per cent of Canadians will retire debt-free.
Ironically, a CIBC survey in August showed the majority of Canadians believe they will be debt-free by age 55, but only one-third of respondents aged 55 to 64 were actually debt-free.
The scariest survey of all showed five per cent of Canadians are counting on a lottery win to fund their retirement! (We have always referred to this as the LRSP -- Lottery Retirement Savings Plan.)
People are worried and having a harder time making ends meet. Many report an inability to reach their annual financial goals, but since it appears only 20 per cent of Canadians have a financial plan (SunLife and other surveys), I'm not sure how these folks really know if they are reaching their goals or not.
A financial plan establishes specific, measurable goals, for short term and long term. It sets up specific steps to be followed in order to reach those goals and establishes regular points of measurement of success, or the need for adjustment.
For people who have a specific goal of being out of debt by retirement, it's a straightforward process of calculating the amount of extra payments required on those debts to extinguish them by a certain date. The financial plan would decide where that money will come from, and the system will be set up to automatically to make it happen.
Discipline will be required to follow the plan and avoid incurring debt elsewhere, obviously, but what I have found again and again is that a little bit of success is a huge motivator. It's just like going on a diet and exercise program to lose a set amount of weight -- when you see progress, it's much easier to make all of those little positive choices.
The first 21 days of the new behaviour are most difficult, but after that it becomes habit. With financial behaviours, many of them only occur once a month, so a longer period of time may be required to make them habit, and you may only see the results after several months or even a year.
In this case, your motivation can come from developing a powerful vision of how wonderful it will feel to be debt-free (or 10 pounds lighter), and picturing that vision daily.
Here's some extra motivation. The 35 per cent of people who have talked to an adviser, and 20 per cent of people who have a financial plan in place, are more than twice as confident about reaching their goals, and they have significantly fewer money worries.
Those facts alone should make it worthwhile. With holidays coming up, you have a realistic opportunity to set some time aside to develop specific goals and plans.
Right now, commit to an hour this weekend to refine your vision and write down the specific goals and steps that will take you there. I guarantee you will feel better on Monday.
Oh, and please don't go into debt buying Christmas presents. Your recipients would be happier you didn't.
Source: http://www.winnipegfreepress.com/opinion/columnists/135724958.html
I'm not referring to the European debt crisis, the weakening world economies, the prospects for slow growth and the volatile stock markets. These are all real sources of concern, but I'm thinking more of things we can control.
Recently, study after study has shown a shocking number of people in Canada are trying to retire while carrying large amounts of debt. It appears our period of low interest rates has helped people decide this is a burden they can afford.
That may be true while interest rates are low, but it's a scary proposition if rates rise even two per cent. At that point, they would still be near historic lows, but a lot of people with variable interest rate loans would have seen the payments increase significantly.
Here are some of the statistics that have scared me lately. I have to give credit to Gordon Pape for compiling these (and to the various financial institutions that financed the research). I introduced Gordon recently at the annual Knowledge Bureau Distinguished Adviser Conference and was then shocked by what he had put together.
We know from Statistics Canada that, on average, Canadians owe about $1.51 for each one dollar of income, the highest level ever. Apparently, this trend is not restricted to young people. A recent poll sponsored by RBC showed only 56 per cent of Canadians will retire debt-free.
Ironically, a CIBC survey in August showed the majority of Canadians believe they will be debt-free by age 55, but only one-third of respondents aged 55 to 64 were actually debt-free.
The scariest survey of all showed five per cent of Canadians are counting on a lottery win to fund their retirement! (We have always referred to this as the LRSP -- Lottery Retirement Savings Plan.)
People are worried and having a harder time making ends meet. Many report an inability to reach their annual financial goals, but since it appears only 20 per cent of Canadians have a financial plan (SunLife and other surveys), I'm not sure how these folks really know if they are reaching their goals or not.
A financial plan establishes specific, measurable goals, for short term and long term. It sets up specific steps to be followed in order to reach those goals and establishes regular points of measurement of success, or the need for adjustment.
For people who have a specific goal of being out of debt by retirement, it's a straightforward process of calculating the amount of extra payments required on those debts to extinguish them by a certain date. The financial plan would decide where that money will come from, and the system will be set up to automatically to make it happen.
Discipline will be required to follow the plan and avoid incurring debt elsewhere, obviously, but what I have found again and again is that a little bit of success is a huge motivator. It's just like going on a diet and exercise program to lose a set amount of weight -- when you see progress, it's much easier to make all of those little positive choices.
The first 21 days of the new behaviour are most difficult, but after that it becomes habit. With financial behaviours, many of them only occur once a month, so a longer period of time may be required to make them habit, and you may only see the results after several months or even a year.
In this case, your motivation can come from developing a powerful vision of how wonderful it will feel to be debt-free (or 10 pounds lighter), and picturing that vision daily.
Here's some extra motivation. The 35 per cent of people who have talked to an adviser, and 20 per cent of people who have a financial plan in place, are more than twice as confident about reaching their goals, and they have significantly fewer money worries.
Those facts alone should make it worthwhile. With holidays coming up, you have a realistic opportunity to set some time aside to develop specific goals and plans.
Right now, commit to an hour this weekend to refine your vision and write down the specific goals and steps that will take you there. I guarantee you will feel better on Monday.
Oh, and please don't go into debt buying Christmas presents. Your recipients would be happier you didn't.
Source: http://www.winnipegfreepress.com/opinion/columnists/135724958.html
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