The benefits of a documented financial plan are unknown to many Canadians as almost half (46%) say they don’t have one while others confuse their personal budget for a financial plan, according to a new report from Toronto-based Canadian Imperial Bank of Commerce (CIBC).
Of the 46% of Canadians who don’t have a financial plan, 42% say they have a “pretty good idea” of what they need to do to reach their financial goals and don’t need to write anything down. More than a quarter (26%) of this group feels their financial situation is simple and doesn’t require a financial plan.
“While most of us have a fairly good sense of our financial goals, it’s surprising that so many Canadians don’t have a clear road map in place to achieve what they want today and tomorrow,” says Sarah Widmeyer, managing director and head of wealth strategies with CIBC, in a statement.
In contrast, 54% of Canadians say they have a financial plan in place with 64% of this group describe it as a long-term plan that identifies their savings goals and the steps needed to achieve them. However, 36% of those who say they have a financial plan describe it as a short-term plan or a budget they review regularly.
This confusion may leave those Canadians ill-prepared to deal with future financial needs, says Widmeyer: “While budgeting and financial planning go hand-in-hand, a budget alone is insufficient in crafting the life you want in the future.”
Clients should be informed of the various elements of a documented financial plan, which include personal goals, financial needs and priorities in areas such as income, expenses, taxes, retirement planning and insurance, Widmeyer suggests.
The CIBC survey shows that Canadians who have financial plans are more confident that they can handle a variety of unexpected life events than those who don’t.
The area in which the gap between the two sets of survey participants is widest pertains to the possibility of a sudden job loss for someone in the household as 70% of those with a financial plan say they could manage such a scenario while only 58% of those without a plan state the same.
The CIBC survey also explores the effect that working with a financial advisor can have on a Canadian’s ability to handle unexpected scenarios. The areas in which Canadians with advisors feel the most confidence is in managing a health scenario that would make someone unable to work (78%) and paying for medical expenses not covered by an insurance provider (78%). About two-thirds of Canadians without advisors say the same for those two events.
The areas in which advisors seem to be having less of a noticeable effect are in the ability to handle a divorce or a growing family. About half (52%) of those with advisors say they can handle a divorce compared with 46% of those without advisors while 60% of those with advisors say they can handle the expenses connected with a growing family compared to 55% of those without an advisor.
This research is based on data collected from 1,007 Canadian adults with a household income greater than $100,000 a year who are Angus Reid Forum panellists. The data were collected from Jan. 5 to Jan. 9.
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