Thank you for inviting me to participate in this study.
My name is Philippe d'Astous. I'm an associate professor and director of the financial education laboratory at HEC Montréal.
As part of my research, I have studied household debt from several angles, including minimum credit card payments, instalment purchases and mortgage payments. One of the findings from my research is that the problem is not just household debt, but the fact that many credit products remain difficult to understand, even for educated consumers. Debt can therefore become problematic if households make credit decisions today without fully understanding their future implications.
I teach a personal finance course as part of the Bachelor of Business Administration program at HEC Montréal, and I’ve noticed that many basic aspects of debt are poorly understood, even by university business students. For example, does the bank charge interest on my credit card when I make only the minimum payment? Are the equal-payment plans I see online really free of charge? As an exercise, we study debt contracts in class to better understand their terms, and it’s clear that reading them often remains a challenge.
To fully understand where we stand with household debt levels, we must also ensure that consumers understand the impact of their financial choices. Otherwise, they may find themselves more vulnerable in the event of future hardships. Using the example of minimum credit card payments, I have shown in my research that there are two types of consumers likely to make the minimum payment and, as a result, end up paying high interest charges: those who cannot afford to pay more, and those who can afford to pay more but may not understand the high cost of interest they incur by making only the minimum payment.
When we examine instalment purchases, my research shows that some households tend to rely on these loans repeatedly, which means they must manage multiple monthly payments, putting them at greater risk of defaulting.
Because it incurs costs, the use of high-interest credit represents a trade-off between consumption today, which is offset by interest costs, and the ability to pay in the future. Households must therefore clearly understand, at the time they take on debt, that their current choices may limit their future financial flexibility, even if they do not lead to bankruptcy.
There are therefore two key takeaways from my findings that could help improve the situation. First, I believe it is important to present the true cost of credit in a clear and simple manner, as well as to highlight the cost incurred when a payment is missed—not just when all payments are made on time.
Second, it remains important to double efforts to teach financial literacy early on so that young consumers—who are the borrowers of tomorrow—are better equipped to understand the consequences of their borrowing decisions. Research shows that education is most effective when it is provided just in time, that is, at the moment when borrowing decisions are being made.
I would like to thank you for your invitation. I will be happy to answer your questions in both official languages.