What would you do with $5,000? Here’s what Canadians said amid high inflation – National | Globalnews.ca

If you received a $5,000 surprise with no strings attached, what would you spend it on? A new car or a kitchen renovation? Tickets to an exotic location? Where would you invest it?

As inflation remains near the highest levels in decades, nearly half of Canadians say they would spend such a windfall to pay down debt or cover day-to-day expenses, according to a poll by the Angus Reid Institute ( ARI) carried out at the beginning of August.

Some 38% of Canadians surveyed said paying off their debt or other long-term financial obligation would be their first priority, while 10% said such a windfall would primarily be used to pay off day-to-day expenses.

Meanwhile, 43% of respondents said the money would be saved or invested and only 9% said it would go towards a “major” purchase.

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a margin of error of +/- 2.0 percentage points, 19 times out of 20.

Global News / Angus Reid Institute

The $5,000 windfall question is part of an ARI survey looking at the “balance sheet of inflation” and asking Canadians how they are coping with the rising cost of living. The survey, conducted online, samples more than 2,200 Angus Reid Forum members.

Four in five respondents said they cut back on discretionary spending, put off major purchases, cut back on travel, drove less or put off saving money in the past few months. This figure is up from 74% in February.

Since then, annual inflation has soared to nearly 40-year highs as war in Ukraine and global supply chain constraints have pushed up prices across the board. Headline inflation eased slightly in July to 7.6% amid falling gasoline prices, but pressure remained high on basics such as food.

ARI President Shachi Kurl told Global News that for a generation of Canadians, interest rates and inflation have been relatively low and goods have been affordable and accessible. The current episode of inflation marks a shift in priorities as some households struggle to make ends meet during a downturn.

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“For the first time in their adult lives, many Canadians are experiencing moments of ‘Huh? It’s new. This is different. What are we going to do about it? “, She says.

Kurl notes that Canadians at the lower end of the income scale are feeling the pain of inflation the most.

Indeed, 23% of respondents earning less than $25,000 a year would spend a sudden windfall of $5,000 on daily expenses, compared to just 5% of those with annual incomes between $150,000 and $200,000.

“It’s an impact that really has people counting every penny and getting to a point where they’re faced with trade-offs and decisions about what gets paid this month, what gets deferred,” says -she.

Thought experiments are good for setting “money priorities”

Natasha Knox, director of Alaphia Financial Wellness in British Columbia, says it’s hard to know exactly what Canadians dream of saving and paying off debt because the ARI poll is just a ‘snapshot’ without previous comparison.

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But when it comes to spending a hypothetical bargain, Canadians can learn a lot about their own “mental accounting biases,” she says.

“People sometimes treat bargains differently than other types of money,” she says.

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To help determine underlying financial priorities from the windfall question, Knox would urge one to think of money in a different context: if generated in secondary turmoil, perhaps accumulated over a period of six months rather than all at once, would he always go to the same place?

If the answers to this question and the windfall experience are different, it could be a sign to align your financial desires.

“If a person hasn’t already set their financial priorities, now would be the time,” she says.

“A thought experiment like this could be seen as simply accelerating one of those priorities.”

Paying off high-interest debt is always a good idea: experts

In addition to inflation weighing on Canadians’ bottom lines, efforts by the Bank of Canada to raise interest rates and ease these pressures meanwhile increase the cost of borrowing.

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Wes Cowan, senior vice-president of accounting and insolvency firm MNP LTD., says as a result, he’s not surprised to see 38% of Canadians dream of paying off their debts with a windfall.

Half of respondents aged 35 to 54 said they would use the $5,000 to pay off their debt; ARI notes this group which represents a third of the adult population but holds 57% of the national debt load, according to Statistics Canada.

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“That tells us something about the level of concern people have about how much debt they have and perhaps how much that debt will cost them if interest rates continue to rise,” Cowan told Global News.

He and Knox agree that paying off debt is always a smart move if you run into unexpected cash.

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The faster you can pay off the debt, the less interest accrues on the loan and the less you’ll owe overall, Cowan says.

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“You will have less debt to repay in the future. And so in terms of cash flow each month, it’s going to be better,” he says.

Importantly, Canadians strapped for debt don’t have to wait for a sudden windfall to get their finances in order.

Cowan recommends focusing on debt loads such as credit cards — those with the highest interest rate or unsecured debt that responds directly to Bank of Canada policy rates. Taking out a line of credit from your bank with a lower credit rate to pay off the most expensive debt could be a place to start.

Canadians can also speak to a licensed insolvency trustee, which is regulated by the federal government, for more formal ways to get debt under control, he says.

The Angus Reid Institute poll was conducted via an online survey from August 8-10. She surveyed a representative random sample of 2,279 adult Canadian Angus Reid Forum members. It has a margin of error of +/- 2.0 percentage points, 19 times out of 20.

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