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Canadians Expect to Run Lower Card Balances

An Ernst & Young study released Wednesday shows 91% of Canadians who carry credit card balances expect to carry no balance or a lower balance over the next year. The figure is up from 88% in April of last year. However the study also showed the number of Canadians carrying balances has increase slightly from 38% last April to 39% in January. The study, based on 1500 interviews, suggests that while more Canadians are carrying credit card balances those balances are declining.

An Ernst & Young/Angus Reid Group poll indicates that over the next year, 91% of Canadians who carry outstanding balances on their credit cards expect their balances to be eliminated or reduced. This compares to 88% in April 1996.

In September of 1995, Ernst & Young conducted a benchmark study on Canadian consumer finances. Results at that time indicated that 38% of Canadians had outstanding credit card balances. The same question, asked in April, 1996, had identical results. In January, 1997, this figure has increased one percentage point to 39%.

“This begs the question, `if there is an overwhelming expectation of debt reduction and the number of people carrying balances hasn’t declined, have Canadians’ debt reduction dreams turned to dust?”’ asks Nick Hodson, a forensic accountant with Ernst & Young. There is a glimmer of hope, according to Hodson. “While the number of people carrying outstanding balances has showed a slight increase, more Canadians are carrying smaller balances. Of the people carrying outstanding balances, only 39% said the balance was higher than a year ago.

This compares favourably with the September 1995 survey when 44% of Canadians said their balances were higher than three years previously and with April 1996 when 49% said yes to the same question, he says. “This suggests that perhaps Canadians may have turned the corner in reducing credit card debt. But there’s a long way to go. If you expected last year that you would eliminate your debt by now it was mostly wishful thinking and it will probably be the same for most people with the same expectation today.”

The findings come from 1,519 telephone interviews conducted with a random representative cross-section of Canadian adults aged 18 or older, between January 21 and January 27, 1997. Results of a survey this size are said to be accurate to within +/- 2.5 percent, 19 times out of 20. The margin of error will be larger within specific regions and for other sub-groups of the population. The 1995 and 1996 studies were also conducted by The Angus Reid Group and posed the identical questions and parameters.

The most probable profile of the Canadian with the highest credit card debt is an 18-34 year old with some post-secondary education and an income in the $30,000-60,000 range. Among the age groups the 18-34 range represented 49% of the people with outstanding balances. People with some (non-university) post secondary education represented 45% of the outstanding balances and people earning between $30,000 and $60,000 represented 43% of the balances. This profile was similar in April 1996. Regionally, the highest proportion of outstanding balances was in Alberta (47%), British Columbia (42%) and Ontario (42%). With the lowest proportion of outstanding balances was Quebec (32%) and Manitoba/Saskatchewan (35%).

Hodson says “Advising clients about fraud risks is a significant part of my practice. The continued high level of credit card and other consumer debt together with the continuing unfulfilled debt reduction expectations is disturbing.

“This survey shows Canadians have an overwhelming desire to reduce their debt load and year after year they can’t do it. Continuing financial pressure year after year wears people down. They are motivated, even desperate to find a solution – any solution – and that can include fraud. People commit fraud when they have motivation, opportunity and can rationalize their actions to themselves. Effective fraud risk management by employers requires a strategy that deals with these three dimensions. Motivation can be addressed in a number of ways, one of which is providing personal financial counseling. It reduces the risk that some employees will help themselves at their employer’s expense to say nothing of improving morale and productivity. The survey indicates 2 out of 5 (39%) of Canadians are carrying outstanding balances. For ages 18-54, the proportion is almost 1 out of 2 (49%) in the 18-34 age group, and 46% in the 35-54 age group.”

Hodson says there is limited likelihood of seeing significant reduction in this high level of consumer debt until Canadians begin to realize increased incomes. Dr. Stephen Tanny, Economic Advisor to Ernst & Young agrees, “For most consumers with outstanding balances, the elimination of their credit card debt will require a more sustained improvement in jobs and wage growth,” he says.

Canadians with outstanding balances on their credit cards were asked if they would see personal bankruptcy as a means of resolving their problems if their financial circumstances became too difficult to manage. In April 1996 one in five (20%) said they would. In January 1997 that figure edged up slightly to 21%. Hodson notes, “Personal bankruptcy has been a growing problem for credit granters throughout North America and it doesn’t look like it’s going away.”

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