A special report from the BMO Real Financial Progress Index reveals concerns about the cost of living are affecting Canadians’ spending plans for 2025, with nearly a third (30%) planning to minimize spending in the new year. Nearly half (46%) of Canadians say the higher cost of living will affect their financial new year’s resolutions – a 4% increase from 2023.
BMO’s special report explores how concerns about current economic conditions have affected Canadians’ approaches to financial planning ahead of the new year and reveals:
- 2024 Financial Wrap: Amid increased concerns about the cost of living (54%), inflation (50%) and a possible economic recession (42%), the leading sources of financial anxiety include concerns about overall financial situation (82%), fear of unknown expenses (82%), housing costs (73%), family related expenses (67%) and keeping up with monthly bills (64%).
- Ringing in Financial Optimism: Despite continued concerns about the cost of living, the majority feel they are making real financial progress (87%) and are optimistic about their financial future for the upcoming year (72%). 37% feel more financially secure than they were a year ago.
- New Year, New Goals: Over one in five (21%) Canadians plan to create financial goals and/or a budget for 2025. Among the 69% of Canadians who have already set financial goals for themselves, top goals include saving for retirement (58%), saving for a vacation (47%), and paying down debt (40%).
- Planning Prognosis: Only a third (33%) currently have a financial plan and 59% do not have a household budget for the year.
- Over a third (36%) are planning major purchases within the next year, but one quarter of them (24%) plan to modify their purchases to account for rising costs of living.
- Annual Review: To stay on top of financial planning and goals, on average, 92% of Canadians review their financial plan at least once a year.
According to BMO Economics, Canadian households can look forward to lower borrowing costs in 2025 as the Bank of Canada is likely not finished its easing policy. After lowering its overnight target rate by 175 bps since June 2024 — the most aggressive move among major central banks in that period — an additional 75 bps of rate relief is anticipated in the first half of 2025. However, longer-term borrowing costs, which have already fallen sharply, are likely to decline only moderately further as economic activity picks up.
“The new year marks a fresh start for self reflection and improvement, and we want to empower Canadians to focus on building good habits and making real financial progress by encouraging them to get a head start on defining their financial goals,” said Anthony (Tony) Tintinalli, Head, Specialized Sales, BMO. “As we look forward to the new year and its possibilities, Canadians can work with a financial advisor to build a personalized plan and take advantage of convenient online banking tools to help monitor their budgets and establish good financial habits that will set your financial future up for success.”
Tips for Keeping Your Financial New Year’s Resolutions
BMO offers Canadians some tips for setting and maintaining their financial new year’s resolutions:
- Start Planning Early: Review the major events planned for the upcoming year including birthdays, weddings, vacations, etc. and account for the associated costs. Setting up savings goals and recurring savings transfers into an account can provide a sense of progress and motivation to achieve any financial goal.
- Prioritize Paying Your Future Self First: To easily stay on track towards longer-term financial goals such as retirement, buying a home, or a large purchase, consider automating some savings to an investment vehicle such as a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) and/or First Home Savings Account (FHSA). Investing allows these savings to benefit from compound interest, grow out of sight and keep up or even outpace inflation.
- Take Advantage of Loyalty Programs: Loyalty programs such as AIR MILES allows Canadians to get more out of their everyday purchases by earning Miles on groceries, gas, pharmacy and more. Miles and/or other program rewards can be redeemed and used towards the purchase of appliances, apparel, travel and more.
- Regular Budget Check Ups: Free, digital banking tools including BMO Insights allows Canadians to conveniently monitor their incoming and outgoing money flow, spending and expenses that will help build the framework to create an accurate budget.
- Seek Professional Advice: Working with a financial planner or advisor can help Canadians develop a personalized plan that reflects their financial goals, sources of income, time horizon, appetite to risk and financial obligations, and make any necessary adjustments.