Canadians Coming Up Short, Relying on Credit Cards in Financial Emergencies

Are you struggling to cover your household expenses? You’re not alone. 4 in 10 Canadians admitted to struggling to cover their household expenses at least once in the last year, finds a new survey from Manulife Bank.

Nearly a quarter (24 percent) found themselves “caught short” without enough money in their bank account to cover their household expenses once or twice in the last 12 months, while 10 percent were caught short a few times a year, and 4 percent were caught short nearly every month.

When Canadians were caught short, the most popular solution was to utilize lines of credit to alleviate cash flow issues. A third (33 percent) of those surveyed admitted to accessing their line of credit the last time they were short on cash.

Expensive Housing Leaving Canadians “House Poor”

Why are so many Canadians struggling to pay the bills? A lack of affordable housing could be the root cause. This is backed up by the findings of a recent online survey by Environics Research. 28 percent said their local housing market was somewhat unaffordable, while 11 percent said it was not affordable at all. Just over half (51 percent) said housing is somewhat affordable, while only 10 percent said housing was very affordable.

Housing affordability varies by region, with homeowners in Atlantic Canada feeling their housing is the most affordable (83 percent), while those in B.C. feel it’s the least affordable (39 percent).

Many Canadians in pricey real estate markets like Toronto and Vancouver are finding themselves “house poor.” This is when a large portion of your income is going towards your home, leaving you with very little money left over to cover other household expenses.

“It starts with their home and if they’re spending too much on their living expenses, spending too much on their housing, that kind of has a domino effect on everything else,” said Jeffrey Schwartz, of Consolidated Credit Counselling Services of Canada. “They need that roof over their heads so they’re going to pay the mortgage no matter what, but they do have other expenses throughout the month.”

Far too many Canadians don’t have an emergency fund. Financial experts recommend keeping three to six months living expenses in a high-interest savings account. The funds can be used for unexpected expenses, such as a new roof or car repairs. This lack of savings means many Canadians are relying on their credit cards in financial emergencies. With most credit cards charging 18.99 percent or more in interest, this is costing many Canadians a pretty penny.

“The challenge faced by many Canadians is that their income is relatively stable from month-to-month, but their expenses can vary significantly,” said Rick Lunny, president and CEO of Manulife Bank of Canada. “Access to rainy day savings or a low-cost line of credit are good options to safeguard against these fluctuations. However, if your backup plan is to carry high-interest credit card debt or borrow from a family member — you could be putting undue stress on your finances or relationships.”

The Bottom Line

While a credit card is a great way to manage your short-term cash flow and earn reward points, relying on it in a financial emergency can prove costly. It’s best to sock away money easily accessible in a savings account for when those big unexpected one-time expenses occur.