Jason Daly, vice president with Manulife Bank of Canada, explains how, and why, Canadians are forming new attitudes toward debt.
Advisors hoping to understand what their clients are thinking today will want to take note of the findings of this recent Manulife study. Apparently, Canadians are not as ashamed about addressing debt as earlier generations were.
According to the study:
* Homeowners in their fifties are almost five times as likely to say they are more comfortable with debt than their parents.
* Those whose parents taught them a lot about debt management are twice as likely to report their debt is in good or great shape
* Eight in 10 homeowners indicate being or becoming debt-free among top financial priorities.
* Almost half of homeowners surveyed would consider themselves to be debt-free even if they have mortgage debt outstanding.
Also in the study: Four in 10 homeowners (39 per cent) indicate they're more comfortable with debt compared to their parents. Just one in eight (13 per cent) feel they are less comfortable. The perceived gap in comfort level was greatest among homeowners in their fifties. These Canadians were five times more likely to indicate a greater degree of comfort with debt than their parents, compared to those in their twenties and thirties, who were only twice as likely. The survey suggests that homeowners are also becoming more comfortable discussing debt within the household, with three in 10 (28 per cent) indicating they communicate more than their parents, compared to just eight per cent who feel they communicate less. Once again, homeowners in their fifties were most likely to feel they differ from their parents. This group was five times as likely to feel they're better communicators than their parents, compared to those in their twenties, who were only slightly more likely.
In an interview with WP Jason Daly explains how, and why, the attitudes are shifting.
WP: There seems to be a shift in attitudes among Canadians. Is this, in your view, a good or bad thing? We tend to think debt is bad, but if it is manageable--as it is in such a low-rate environment--maybe this isn't so bad? What should we think about this shift in attitude?
JD: Two of the more interesting findings from our survey were that people believe they're more comfortable with debt than their parents were, and they believe they're more comfortable discussing debt within the household than their parents were. Both of these findings suggest that people may feel a greater degree of control over their finances than may have been the case with their parents' generation. As long as people have a plan in place to manage their debt and understand how it fits into their long-term goals, a greater degree of comfort is a good thing. And the finding that people feel more comfortable discussing debt is especially encouraging, as it can lead to better debt management within a household.
WP: Is the new acceptance a matter of a generational change? That is, have people decided they are okay with debt? Or is this this shift a result of structural economic issues? That is, are people struggling to maintain their life and taking on debt out of desperation?
JD: There may be a few factors influencing this finding. First, people are encountering debt at younger ages than their parents may have, through student loans and credit cards - and so by the time they're ready for a mortgage they already have a good sense of how debt works and how to manage it. Second, with the rise of social media and communication technology in general, people may be more comfortable discussing their finances with others - again making debt feel less intimidating. Finally, persistently low interest rates have made it easier for people to carry debt than was the case in the past. Certainly it's possible to find people across the spectrum with regards to their ability to manage their debt, however more than 85% of those surveyed feel good about where they're at on their journey to becoming debt-free - and that is very encouraging.
WP: Are Canadians confused about debt? The study mentions some don't think of themselves in debt, though they have a mortgage? Do Canadians have an inaccurate perception of their real financial situation? Or are Canadians being rational (in a low-rate environment)?
JD: This was a particularly interesting insight because often we assume that everyone has the same definition of "debt". However, it may be that because a mortgage is such a long-term debt and each payment has a relatively small impact on their balance, some people see it more as an ongoing expense, such as a hydro bill. The important thing to note here is that this finding varied greatly by age group, with those in their fifties much more likely to consider their mortgage to be debt than those in their 20s or 30s. Younger homeowners are the ones for whom mortgage-freedom is farthest off, and so the payment may feel most like any other monthly bill. However, perhaps as people move into their 40s and 50s, they see their mortgage balance shrinking and begin to see the impact that each payment is making on that balance.
WP: What are the consequences for advisors here? If clients are carrying more debt, are they not further away from their client goals? Should the acceptance of debt be something that concerns advisors? The study seems to suggest people are okay with talking about debt...should advisors be bringing this up with their clients?
JD: Over the past several years, this survey has consistently found that about 3/4 of homeowners indicate that "debt freedom" is among their top financial goals. If advisors aren't talking to their clients about debt management - they're missing a big opportunity to connect with their clients and help them achieve this important goal. Manulife Bank works closely with financial advisors, and we find that more and more are initiating debt-management conversations with their clients. They've realized that, when it comes to personal finances, effective debt management is every bit as important as saving for retirement or education, or getting appropriate insurance coverage. These advisors are looking for ways to integrate all of their clients' financial needs, including debt, within a plan that can make their money work efficiently. This will help clients achieve more of their financial goals with the resources and time available. It's all about creating a plan that's customized to the individual.
WP: What are the obvious take-aways? Clearly, Canadians should have a debt retirement strategy. How do they go about implementing such a thing? What can advisors do to help clients manage debt?
JD: The key takeaway is that, while people are becoming more comfortable with debt, they still place a high value on becoming debt-free. There are lots of easy things that homeowners can do to get them closer to this goal, such as making extra payments on their debt, creating and maintaining a budget or making their money work more efficiently with an all-in-one account such as Manulife One. We also encourage people to get personalized, independent advice from a financial advisor. Advisors can help clients see the big picture - how debt fits into their broader financial plan - and put a plan in place that addresses all of their financial goals, including debt-freedom.
According to the study:
* Homeowners in their fifties are almost five times as likely to say they are more comfortable with debt than their parents.
* Those whose parents taught them a lot about debt management are twice as likely to report their debt is in good or great shape
* Eight in 10 homeowners indicate being or becoming debt-free among top financial priorities.
* Almost half of homeowners surveyed would consider themselves to be debt-free even if they have mortgage debt outstanding.
Also in the study: Four in 10 homeowners (39 per cent) indicate they're more comfortable with debt compared to their parents. Just one in eight (13 per cent) feel they are less comfortable. The perceived gap in comfort level was greatest among homeowners in their fifties. These Canadians were five times more likely to indicate a greater degree of comfort with debt than their parents, compared to those in their twenties and thirties, who were only twice as likely. The survey suggests that homeowners are also becoming more comfortable discussing debt within the household, with three in 10 (28 per cent) indicating they communicate more than their parents, compared to just eight per cent who feel they communicate less. Once again, homeowners in their fifties were most likely to feel they differ from their parents. This group was five times as likely to feel they're better communicators than their parents, compared to those in their twenties, who were only slightly more likely.
In an interview with WP Jason Daly explains how, and why, the attitudes are shifting.
WP: There seems to be a shift in attitudes among Canadians. Is this, in your view, a good or bad thing? We tend to think debt is bad, but if it is manageable--as it is in such a low-rate environment--maybe this isn't so bad? What should we think about this shift in attitude?
JD: Two of the more interesting findings from our survey were that people believe they're more comfortable with debt than their parents were, and they believe they're more comfortable discussing debt within the household than their parents were. Both of these findings suggest that people may feel a greater degree of control over their finances than may have been the case with their parents' generation. As long as people have a plan in place to manage their debt and understand how it fits into their long-term goals, a greater degree of comfort is a good thing. And the finding that people feel more comfortable discussing debt is especially encouraging, as it can lead to better debt management within a household.
WP: Is the new acceptance a matter of a generational change? That is, have people decided they are okay with debt? Or is this this shift a result of structural economic issues? That is, are people struggling to maintain their life and taking on debt out of desperation?
JD: There may be a few factors influencing this finding. First, people are encountering debt at younger ages than their parents may have, through student loans and credit cards - and so by the time they're ready for a mortgage they already have a good sense of how debt works and how to manage it. Second, with the rise of social media and communication technology in general, people may be more comfortable discussing their finances with others - again making debt feel less intimidating. Finally, persistently low interest rates have made it easier for people to carry debt than was the case in the past. Certainly it's possible to find people across the spectrum with regards to their ability to manage their debt, however more than 85% of those surveyed feel good about where they're at on their journey to becoming debt-free - and that is very encouraging.
WP: Are Canadians confused about debt? The study mentions some don't think of themselves in debt, though they have a mortgage? Do Canadians have an inaccurate perception of their real financial situation? Or are Canadians being rational (in a low-rate environment)?
JD: This was a particularly interesting insight because often we assume that everyone has the same definition of "debt". However, it may be that because a mortgage is such a long-term debt and each payment has a relatively small impact on their balance, some people see it more as an ongoing expense, such as a hydro bill. The important thing to note here is that this finding varied greatly by age group, with those in their fifties much more likely to consider their mortgage to be debt than those in their 20s or 30s. Younger homeowners are the ones for whom mortgage-freedom is farthest off, and so the payment may feel most like any other monthly bill. However, perhaps as people move into their 40s and 50s, they see their mortgage balance shrinking and begin to see the impact that each payment is making on that balance.
WP: What are the consequences for advisors here? If clients are carrying more debt, are they not further away from their client goals? Should the acceptance of debt be something that concerns advisors? The study seems to suggest people are okay with talking about debt...should advisors be bringing this up with their clients?
JD: Over the past several years, this survey has consistently found that about 3/4 of homeowners indicate that "debt freedom" is among their top financial goals. If advisors aren't talking to their clients about debt management - they're missing a big opportunity to connect with their clients and help them achieve this important goal. Manulife Bank works closely with financial advisors, and we find that more and more are initiating debt-management conversations with their clients. They've realized that, when it comes to personal finances, effective debt management is every bit as important as saving for retirement or education, or getting appropriate insurance coverage. These advisors are looking for ways to integrate all of their clients' financial needs, including debt, within a plan that can make their money work efficiently. This will help clients achieve more of their financial goals with the resources and time available. It's all about creating a plan that's customized to the individual.
WP: What are the obvious take-aways? Clearly, Canadians should have a debt retirement strategy. How do they go about implementing such a thing? What can advisors do to help clients manage debt?
JD: The key takeaway is that, while people are becoming more comfortable with debt, they still place a high value on becoming debt-free. There are lots of easy things that homeowners can do to get them closer to this goal, such as making extra payments on their debt, creating and maintaining a budget or making their money work more efficiently with an all-in-one account such as Manulife One. We also encourage people to get personalized, independent advice from a financial advisor. Advisors can help clients see the big picture - how debt fits into their broader financial plan - and put a plan in place that addresses all of their financial goals, including debt-freedom.
