Young Homeowners Expect Early Debt Freedom: Poll

Manulife Bank2
Call it youthful ignorance or true determination – either way, young homeowners expect to free themselves from the shackles of debt sooner than their parents did.

Manulife Bank’s quarterly Debt Freedom Survey reveals that more than four out of 10 Canadian homeowners between the ages of 30 and 39 anticipate being debt-free by the end of their forties. Another third predict they’ll have their debts paid by their fifties.

Reality, however, paints a very different picture.

The survey noted that just seven per cent of homeowners aged 40-49, and 16 per cent aged 50 to 59, have actually managed to achieve debt freedom.

This disconnect between having good intentions and actually following through with them also manifests itself with mortgage prepayments. Prepayment flexibility is one of the most sought-after mortgage features. Yet, CAAMP’s 2011 spring survey found that only 18% of mortgagors actually made a lump-sum prepayment on their mortgage in the preceding year.

Despite the good intentions of many new homeowners, Manulife President and CEO Doug Cognick notes that any good plan is subject to unexpected life events, such as home repairs, illness or job loss.

“Debt-freedom is possible, but it requires a commitment to financial discipline, and for many people, some professional advice on how to plan finances for the long term,” he said.

The average homeowner aged 30-39 has $209,200 in total debt, according to the survey. Those in their fifties have an average of $108,500 of debt.

Surprisingly, the survey showed that 19 per cent of homeowners in their fifties actually increased their debt in the past 12 months. Another sobering statistic in the poll is that 20 per cent of homeowners aged 50-59 either couldn’t foresee when they would be debt free, or don’t expect to ever reach that point.

Steve Huebl, CMT

  1. Households earning less than $50k were excluded from the survey which no doubt helped improve the averages.
    Also, $209k total debt for those under 40 seems a bit low given the mortgages needed to buy average SFHs in Toronto and Vancouver.

  2. wjk is on the money. this survey is full of holes. i’ve done mortgages for people who are $600K-$1M in debt, i doubt they’ll be debt-free anytime soon(er than their parents)

  3. People! The fact that a survey does not jive with your personal anecdotes does not invalidate it. There are 34 million plus Canadians, and odds are that the people that constitute your social and professional circles are not representative of the country’s makeup.
    I realize it’s fashionable to view every piece of research put out by financial institutions as sinister propaganda aimed at relieving people of their money, but the key finding from this was that people *overestimate* their ability to get rid of debt!

  4. Well, I won’t be calling it “true determination” :) The main use of surveys about what people plan to do in the future is to help sell them something that makes them feel like they’re doing it; Manulife seems to be on top of the game. If you really want to know what people will in the future do ask them what they did in the last year.

  5. Hi Richard,
    You’re right that FIs put out this kind of research largely for marketing purposes. And past choices are the best (if not an imperfect) indicator of people’s future choices.
    Nonetheless, the findings are interesting in how they speak to human psychology. A lot of us tend to be overly optimistic about our financial futures. Who wants to envision themselves in debt in 20 years? :) But clearly, this and other research reminds us that intention is not enough. I think that’s the real takeaway.

  6. I thank the heavens every day I just squeaked into home-ownership before thing went bananas here on the East Coast… come on “Freedom 49”!!!

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