Last year some American researchers published the results of a study that asked the question: "If you were faced with a financial emergency, could you come up with $2,000 in 30 days?" In that study one quarter of Americans said that no, they could not come up with $2,000 within 30 days. I was curious what the results would be in Canada, so for the first time in our history we hired Harris Decima (the large research company best known for their election polling) to ask the same question.
The results are in, and like in America, just over 1 in 4 Canadians said that they were not very or not at all confident that they could come up with $2,000 in 30 days if faced with an unexpected financial emergency. That's scary. Think about it: if your car broke down and you needed $2,000 to fix it, or if there was a family emergency and you needed to buy plane tickets to fly across the country, could you raise the money to do it? 1 in 4 Canadians don't believe they could; that's scary.
To find out more, we then asked how you would get the money. We provided a list of many options. The first choice for many people was existing savings, but when we added up all of the answers, an astounding 92% of all Canadians said they would consider some form of borrowing to raise at least some of the money. Borrowing sources included lines of credit, credit cards, and borrowing from friends and family, as well as bank loans.
Even though most Canadians would consider borrowing to raise emergency cash, when we asked how comfortable you are with your financial situation, 65% of Canadians are very or somewhat comfortable. 8 out of 10 Canadians are confident they can pay their bills. So even though we would need to borrow in an emergency, we are not worried about it.
So what's my take on this?
It would appear that debt is the "new normal" for Canadians. 50 years ago our parents or grandparents didn't have access to credit cards or lines of credit, so the only way they could prepare for an emergency was to save money. They kept a few dollars in a cookie jar, or at the bank. They had no choice.
Today many of us either can't save, or don't save, in part because we know that if we need money we can always borrow it. That's why credit cards and lines of credit exist. That's true, but what happens if there is an unexpected shock, and you can't borrow? What if you lose your job, or get divorced, or get sick and can't work, and your access to credit is reduced? What if interest rates go up and you can't afford to borrow? Then you've got a problem.
My advice is simple: make a plan. Decide now what you would do if you were faced with a financial emergency.
The solution may be simple. If you have a good job, you may be able to slightly reduce your spending each month, make a household budget, and start saving money.
For others, the solution may not be simple. If you already have a lot of debt, saving isn't your priority: your priority is getting out of debt. You should immediately review your debt management options, and make a plan to reduce your debt, so you can begin saving for the future.
More details on our survey can be found on our article titled High Debt is O.K., Say Many Canadians.