Manulife Bank poll finds almost two-thirds have never consolidated debts
WATERLOO, ON, Oct. 20, 2005 – Nearly two-thirds of Canadian homeowners with household debt surveyed last month say they have never consolidated what they owe, in contrast to a new research study for Manulife Bank of Canada that confirms they could save borrowing costs by combining their debts and short-term assets.
In addition, more than a third of those homeowners say they only make minimum payments on their mortgages, credits cards and other loans, according to the Maritz Research national poll for Manulife Bank in late September.
“This suggests to us that many Canadians are not actively seeking solutions to reduce their debts and likely paying too much in interest costs,” says J. Roman Fedchyshyn, President and CEO of Manulife Bank of Canada. “Building wealth goes beyond finding the best investment or lowest mortgage rate. It’s about managing your debts and short-term cash in the most efficient way to lower your overall costs.”
A separate study for Manulife Bank, released today by the Toronto-based Individual Finance and Insurance Decisions (IFID) Centre, confirmed that Canadians are losing money by spreading their debts and income across a number of products and accounts – and by not putting their savings to work faster to reduce debts.
“Canadians need to take a careful look at the liabilities on their personal balance sheet,” says Moshe Milevsky, an associate professor of finance at York University’s Schulich School of Business and Executive Director of the IFID Centre, who co-wrote the report. “They need to make sure that all their eggs – debts and short-term cash assets – are placed in one basket, otherwise what they owe and what they own aren’t working optimally to lower their costs.” This works particularly well, he noted, with a line of credit where money deposited to lower debts can be accessed when needed in the future.
“We believe that consumers are conditioned to compartmentalize their debts,” the report says. “And while portfolio diversification is an excellent principle when it comes to your assets, it’s not a sound practice when applied to your debts.”
The IFID Centre report uses financial simulation techniques to estimate that a typical Canadian family, with a residential mortgage, loses an average of $1,000 per year by not effectively managing their debts and short-term assets. The study assumes a typical family to be one with approximately $95,000 in a diversified portfolio of liabilities and idle cash of approximately $2,700.
The poll and study released today confirm a previous national survey’s findings that found few Canadian households making a dent in their debts. More than half (53 per cent) of 2,000 Canadians polled a year ago said their household debt had stayed the same; some 23 per cent said it increased in the previous year and less than one in five (19 per cent) said they had reduced their overall household debt during 2004.
Of those in the latest poll who have never consolidated their debts, their biggest reasons were they didn’t feel their debts were large enough to consolidate (56 per cent); they prefer to keep their debts separate (45 per cent) and there is no advantage to consolidating (39 per cent).
“From mortgages to lines of credit, consumer loans to charge cards, financing any purchase today is relatively easy; it’s the efficient repayment of debt that remains the challenge for many Canadians,” Mr. Fedchyshyn said. “We launched Manulife One to help Canadians pay off their debts faster and also to give them a simpler way to manage their money.”
How Manulife One works
In October 1999, Manulife Bank launched Manulife One, a “flexible mortgage account”, to the Canadian marketplace after studying similar all-in-one accounts in Australia and Britain.
In addition to using variable rates to help lower interest costs, Manulife One also uses income and short-term savings to pay down consumers’ consolidated debt until they need to draw the money back out for their monthly expenses. They have the potential to pay down their mortgage much faster and pay considerably less in interest payments.
Manulife Bank has developed an interactive demo on their website (manulifebank.ca) that enables viewers to see the impact of automatically applying their income against their mortgage. Their website currently also features a short video by Moshe Milevsky that educates consumers about his report findings.
The recent survey by Maritz Research was conducted between September 15-21, 2005 with 1,261 Canadian homeowners and has a margin of error of +/- 2.73 per cent, 19 times out of 20. For detailed results, see Manulife Bank’s related Fact Sheet on the survey.
About Manulife Financial
Manulife Financial is a leading Canadian-based financial services group
serving millions of customers in 19 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$364 billion (US$297 billion) as at June 30, 2005.
Manulife Financial established Manulife Bank in 1993 as the first federally regulated bank to be opened by a life insurance company following Canada’s financial reform legislation of 1992. Manulife Bank provides innovative deposit and loan products to help individuals make the most of their financial plan.
Manulife Financial Corporation trades as ‘MFC’ on the TSX, NYSE and PSE, and under ‘0945’ on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com.