Friday, November 2, 2012

Plenty of shortcomings in Canadians' financial habits

Survey shows many Canadians fail to do research before purchasing financial products

Canadian consumers are lacking knowledge and skills in many aspects of their personal finances, a recent survey by Desjardins Group suggests.
The survey of 3,000 Canadians, as part of the Desjardins Personal Finance Index, reveals numerous shortcomings in their financial habits.

For instance, many Canadians don't have enough of a savings cushion to get them through the unexpected loss of a job, accident or illness without relying on credit. Only 50% of respondents said they would be able to take care of their needs and pay their bills for more than three months without resorting to credit; and 14% said they wouldn't last a month with their existing savings.

Retirement planning is another area of weakness. Nearly 60% of respondents said they hadn't set up a retirement savings plan. And of respondents aged 45 to 64 who were still in the workforce, 40% said they hadn't estimated the revenue they'll need upon retirement – and had no savings plan in place.

Many Canadians are also failing to do their research before purchasing financial products, the survey reveals. Insurance products, in particular, remain a mystery to many Canadians. For instance, only 44% of respondents knew that not all insurance policies come with surrender value; and 30% of respondents didn't know whether their credit card includes travel insurance (32% knew that it is included, but weren't sure of the coverage amount).  Furthermore, nearly 40% of those who have a home insurance policy would be unprepared to file a claim in case of a loss, with no lists, receipts or photos of their most valuable goods.

Interest rate calculations are also confusing to Canadians, the survey shows. Roughly half of respondents were unaware that credit card interest charges are calculated as of the date on which the item or service was purchased. Moreover, 60% of respondents were unable to compare total interest paid on two loans with the same terms and different amounts extended at different interest rates.

Young Canadians, in particular, are lacking in their financial knowledge. Half of respondents aged 18 to 24 gave incorrect answers to a simple question on real returns; 45% were unable to handle a simple question on the concept of compound interest; and 70% failed to answer a simple question on investment risk.

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