Our complicated relationship with debt

January 11, 2011

My grandmother could teach a course in living simply.

Nothing is wasted at her house. The water from boiled potatoes makes the base for another soup. She doesn’t need a fancy stereo when her 30-year-old clock radio brings the CBC in just fine. And although she could afford to eat whatever she wants, she prefers to live off simple vegetable soup, sandwiches and homemade wine.

As grandkids, we like to joke about how she stretches every dollar as far as it can go. But as more statistics show how Canadians’ spending habits have gone off the rails, it looks like the joke is on us.

Living more simply is a skill many of us could use now more than ever. Canadians are waking up with post-Christmas hangovers to credit card statements that should have us running for the hills.

But our problems go far beyond credit cards. If Canadians had to describe their relationship with debt on Facebook, they’d have to say “It’s complicated.”

On average, our household debt is now 148 per cent of our disposable income, meaning we owe $1.48 for every buck we have left over after taxes and pensions. Many of owe our banks so much we won’t be able to handle any unexpected downturn in our income – like a job loss or a serious illness.

And we keep on spending, often with other people’s money. A full third of Canadians who aren’t retired don’t put any money into savings at all, according to the Certified General Accountants Association of Canada.

When we do put money away, it’s downright embarrassing. We save on average only $2.80 for every $100 of household income – less than half what Americans do. The last time we saved this little money, it was 1938, at the end of the Great Depression.

No surprise, the number of Canadians who can’t keep their heads above all that debt and are declaring personal bankruptcy is 22 per cent higher now than it was before the recession.

We have long borrowed money, for our homes, cars and shopping trips – but today our spending habits have brought us into uncharted territory. We are borrowing money at rates never seen before in our history, making us one of the world’s biggest gorgers of credit.

Tellingly, when the crippling recession made it harder for average Canadians to pay their bills, we responded by doing what we do best – taking on more debt. Some say that’s fine, considering the value of our homes has continued to rise, too. But it’s dangerous to take comfort in the belief that will never change.

All debt is not all bad, of course. It gives us places to live, university educations, vacations and other things we could never buy only with money we have in the bank. But when debt becomes the go-to method of paying for nearly everything in our lives, the balancing act can start to fall apart, with some very real consequences for families.

Debt’s crushing effects are most obvious with working poor, who are increasingly using credit cards and bank loans to pay for basic things like food, rent and utilities. That leaves them stuck in a cycle of unpaid balances, keeping them from ever getting on top of their finances.
And when low income earners and the working poor are banks’ most lucrative credit card customers, there is a problem.

Canadians’ struggle with debt was an issue long before the recession. Personal bankruptcies have been rising for decades, in lock step with increasing access to credit cards.

Dependence on lines of credit is 25 times the level it was at 20 years ago. Last year, Canadians were carrying over $78 billion dollars in unpaid debt on their credit cards. More and more of us are taking months to pay off our statements.

And yet, we just keep on spending. I think it’s time I give my grandmother a call – collect, of course.
Greg Mercer is a Guelph-based writer. His column appears Wednesdays. He can be reached at greg_mercer@hotmail.com, and past columns can be read at gregmercer.ca

Guelph Mercury, Jan. 12 2011

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