Canadians and their money

It’s not an exaggeration to say that Canadians have faced some economic challenges over the past few years. Whether it be inflation, rising interest rates, or just the general volatility of the economy, some of us might feel a bit uncertain about where we stand financially compared to others.

Teddy Roosevelt once said “Comparison is the thief of joy”. While comparing yourself to your neighbors can have its own issues, like “keeping up with the Joneses” , knowing where you stand economically can also help you have some compassion for your own situation.

Let’s start with a look at the numbers, and then move on to the actions we can take.

If you feel like your finances have gotten worse recently, you’re not alone. According to research conducted by Nanos Research for Bloomberg News, almost half (47%) of respondents said that their finances have worsened over the past year - one of the highest ever readings for this question.

The same survey found that the overall view for the economy is pessimistic, with 64% of respondents indicating that they expect the economy to deteriorate over the next six months.

This negative sentiment might make some sense in face of increasing debt loads for the average Canadian. According to Equifax, the average debt load in Canada (excluding mortgages) was about $21,000 and the average credit card debt was $2,121.

People seem to be taking some action to address those concerns, though. A recent survey from Zolo suggests that Canadians (or at least Canadian homeowners) are starting to establish and grow their emergency funds, with 83% saying they could go at least 30 days before running out of money to pay their bills.

On the subject of Canadian homeownership, in April 2023 the government introduced the First Home Savings Account (FHSA), a powerful tax-advantaged savings tool to help more Canadians to join the ranks of homeowners. And even if homeownership isn’t in your immediate plans, there are still other ways we can look to improve our finances.

To start with, if your financial situation is improving and you’re optimistic for your economic future, well done!

If you find yourself uncomfortable with your financial situation and want to improve where you stand relative to the numbers we discussed, here are a few good areas to tackle to feel a bit better about your financial situation. You can prioritize them in whichever way makes sense for your financial situation.

1.  Pay down debt (if you can): Debt is the magic of compound interest working in reverse. The interest rates of some debt can be quite high, and paying it down faster can help you pay less interest over your debt’s lifetime. If you’re looking for some tips on how to get started, two popular methods are the debt snowball or debt avalanche.
2. Build an emergency fund: It might only be built a few dollars at a time, but an emergency fund can offer a lot of financial security by preparing you for unexpected bills, expenses, or other financial emergencies.
3. Keep saving for the future (if possible): The economy moves in cycles, and while many of us may feel pessimistic about the economy in the near future, history suggests that, at some point, we will again enter a positive economic cycle. Putting away a few dollars every pay period can help you keep making progress towards your economic goals, as well as positioning you to potentially benefit from any economic upswing (the power of compounding working for you, not against you). You can even automate your contributions at Questrade - learn more here.
4. Open the right account for your goals: The government has created a number of registered accounts that can help you better achieve your investment goals. Whether it’s an RESP for a child’s education fund, a TFSA for short-term goals, or an RRSP for retirement, there might be a tax-advantaged way for you to save and help achieve what you want.

While things may seem a bit less optimistic for many Canadians right now, taking action for your personal finances now can help better position you for the future. We might not know what the future holds, but it is a lot easier to face that future with a secure financial foundation.

Want to learn more about some potential next steps for people your age? Check out our series on financial security throughout your life.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.