Nearly half of Canadian homeowners do not have an adequate rainy-day fund, and 16 per cent would struggle to pay for their household bills if their mortgage payments were to increase at all, according to the results of a Manulife survey released November 24.
In a study of Canadians from three generations – Millennials, Generation X and Baby Boomers – the bank found that Millennial homeowners (aged 20 to 34) have the lowest levels of emergency funds among the respondents, at a median of $3,500. Around a quarter of respondents across all three generations either reported having less than $1,000 set aside or said they “don’t know” how much they have. Only around one third of respondents said they had more than $5,000 saved for emergencies.
Among homeowners with mortgage debt, 38 per cent said they have some difficulty affording their mortgage, utilities and maintenance. The survey also reported more than 30 per cent will find it difficult to pay their bills within three months if the household’s main wage earner loses their job.
“It’s undoubtedly stressful living paycheque-to-paycheque,” said Rick Lunny, president and CEO of Manulife. “If you don’t have extra cash at the end of the month, it’s very difficult to build a rainy-day account. For those who find themselves in this situation – a good place to start is working with an advisor to create a budget. Many people are surprised at how much of their money is going toward things that they don’t consider that important.”
When asked about current interest rates, more than one-third of Millennial homeowners said they feel mortgage interest rates are too high – despite the fact that Canada is currently seeing extremely low interest rates. Only 11 per cent of boomers (aged 52 to 69) agreed.
“The survey results may be more reflective of monthly mortgage costs - which are a function of debt and interest rates,” said Philip Petursson, chief investment strategist at Manulife Investments. “Perhaps the emphasis is misplaced on interest rates, given the fact that interest rates are at decade lows, as opposed to the real driver of higher mortgage costs, which is housing prices.”
Generation X (aged 35 to 51) reported that their biggest source of stress is not being able to save enough for retirement. Boomers largely reported that they want to remain in their homes during retirement, but four in 10 said they expect their home equity to make up more than 60 per cent of their household wealth when they retire.
Manulife Bank recommends homeowners have enough emergency savings to cover three to six months of expenses. “A financial buffer is an important part of a financial plan,” added Lunny. “A high-interest savings account is a good option. Or, if you’ve got a home equity line of credit, you could use your savings to reduce your debt and save interest – and still have access to that money if an emergency arises.”
To see the full interactive survey report, click here.
