Debt reduction a priority for Canadians in 2013

Knowledge Bureau Report readers are a disciplined bunch. Only one in four felt the pressure to overspend during the holiday season.

In the Knowledge Bureau’s December poll, only 25% responded with a “Yes” to the question, “Do you feel pressured to overspend during the holiday season?” Although some readers — hearing the siren call of seasonal advertising — noted the difficulty of staying on the fiscal straight and narrow, 75% said they did not feel pressured to forsake their holiday budgets and overspend.

KBR readers may be representative of Canadians generally and their increasing awareness of the impact of debt. Because Canadians were spending at a faster rate than household incomes grew over the past few years, the ratio of household debt to income rose to an unprecedented 164.6% in 2012. In the current fragile economic environment, with 2013 growth forecast at less than 2%, big increases in household income seem unlikely. There is no way to grow out of debt; the only way is to quit spending.    

Canadians appear to be doing just that. According to a Harris/Decima poll conducted for CIBC,  an increasing number of Canadians said their top financial priority entering 2013 was reducing debt. For the third year running, respondents placed a higher priority on reducing debt than on building savings, managing day-today-spending and retirement planning. In fact, the number of Canadians making paying down debt their top priority has increased to 17% in 2013 from 14% in 2011.

It is the 25 to 54 year olds who are putting the greatest emphasis on debt reduction, which is not surprising when you consider these age groups are in the accumulative stages of their lives. They are the ones with mortgage payments and young children.

This focus on paying down debt could be an opportunity for financial advisors. According to CIBC, 46% of Canadians surveyed said they had met with an advisor in the past year. Yet, only 6% considered debt management a topic of conversation with an advisor.

“Many Canadians are missing an opportunity to get advice about debt management as part of their broader financial plan,” noted Christina Kramer, executive vice president of retail distribution and channel strategy for CIBC, in a press release. “As you repay debt, you reduce interest costs which can free up some of your income to be directed toward other goals, such as building up your savings account or having a better monthly cash flow.”

As Canadians get serious about addressing debt, it is time they and their advisors opened the conversation about how to reduce debt.

Knowledge Bureau Report wants to thank readers for participating in the December poll. We look forward to your responses to our January poll.