March 25, 2014

By Margaret H Johnson

Consumer debt in Canada is $1.4 trillion? Yikes. That is what was reported today in the Canadian Press. Canadians owe $1.4 trillion.

The article then goes on to tell us that consumer debt, including mortgages, make up the $1.4 trillion. Guess what? When you mix mortgages with consumer debt you do not end up with consumer debt. The correct term is household debt.

Now that doesn’t diminish the warnings that our debt levels are too high and need our attention. I hear constantly blowing in the wind, interest rates will gradually rise sometime in the future. That worries me a great deal. That will hurt all those who owe the consumer debt – credit cards, car loans and unsecured lines of credit - because this kind of debt does not have an asset that will increase in value over time like a house. It gets harder to pay off the deeper down we sink into consumer debt.

You see, unlike the picture painted by many analysts, most people are in debt for a number of complex reasons. They usually do not enjoy being in debt and would like nothing better than to get out of debt. The problem is this: they get stuck.

Consumer debt keeps going up not because people can’t control their shopping habits, but because they are struggling to meet the costs of raising a family, ever increasing inflationary expenses and taxes. As reported February 7th, 2014, by the Bank of Canada, the consumer debt total has reached $518 billion… up from $509 billion in January 2013.

Each and every year Canadians have borrowed more and more since 1975 as illustrated below:

Consumer Credit (excluding Mortgages) Statistics as reported by the Bank of Canada

1975   

$23-billion

1985   

$58-billion

1990               

$98-billion

1995               

$116-billion

2000               

$187-billion

2008               

$ 372-billion

There is no simple explanation for our historical usage of credit.

Credit cards, for example, have been targeted as the main culprit. But, history has shown that credit cards are more of a symbol of the computer age than anything else. The banks led the revolution of the marketplace from the cumbersome days of cash and carry to the electronic and computer age of internet banking and automated transfers.

Today the financial landscape looks like this. As reported by the Canadian Bankers Association (CBA) as of February 2012,

  •          74 million Visa and Mastercards in circulation in Canada that accounted for $301 billion net retail sales.
  •          There were 22 billion debit cards that accounted for $171 billion
    •          63% of Canadians banked online
    •          58,200 ABMs in total in Canada
    •          17,255 bank-owned Automated Banking Machines (ABM) in Canada
    •          22 domestic banks
    •          25 foreign bank subsidiaries
    •          28 foreign bank branches
    •          70 Life insurers
    •          1,000 Credit Unions
    •          200 Finance Companies
    •          35 Non-bank Trust Companies
    •          30 retail mutual fund managers
    •          140 Pension fund managers
    •          180 Investment dealers
    •          130 Property and casualty insurance companies
  •          the cost of post-secondary education
  •          Marital breakdown
  •          Compulsive shopping
  •          Gambling
  •          Substance abuse
  •          Unrealistic expectations
  •          Instant Gratification Culture

The traditional bank account remains but has acquired many names and variations like:

  •  the power chequing account
  •  the basic account
  •  the value account
  •  the power savings accounting
  •  the tax free savings account
  •  the money master savings account
  •  the daily interest savings account
  •  the US Dollar daily interest account

Along the road to cashlessness, middle and lower incomes have not kept pace with inflation and taxation. For example, Roger Sauvé in February 2006 published a study, Can You Spare a Dime? where he showed that (if you take out inflation) the typical worker today earned only 10 cents more per hour than they did in 1991.

In an updated report entitled The Current State of Family Finances (2008) Mr. Sauvé illustrated the current gap between the rich and poor in Canada. Accordingly, the richest one-fifth of the population accounted for 44% of the annual incomes and held 69% of the accumulated wealth. The middle fifth of households received 17% of the incomes and 8% of the wealth. The poorest fifth of households claimed a meagre 5% of the after income tax incomes, and possessed absolutely no wealth.

The costs to raise a child have been going up. As reported (by Daniela Minicucci) in Global News on June 10, 2011, citing Tom Drake, an Edmonton-based financial analyst, as well as data provided by Manitoba Agriculture, the average expenses related to raising a child to 19-years-old will be $191,665.00. This does not include post-secondary education.  And in the United States, according to data released by the U.S. Department of Agriculture, the average cost of raising a child born in 2010 will be $226,920.00  (US).

Many other factors have added pressures to individuals and families such as:

There are many reasons why people are stuck in debt and can’t get out. However, the threat of increased interest rates is real and we need to find a way to minimize the fallout on our families and future. Take action today. Call a credit counsellor. Call me 1-877-588-9491.

 

 

Remember, if you are experiencing financial difficulties do not wait. Call Solutions Credit Counselling at 1(877)588-9491 or fill out our Debt Consolidation Questionnaire and get your Free Credit Counselling Advice today.

For more information visit Debt Canada - your Canadian credit education centre.

If you are a woman in debt, speak with Women and Money first. We specialize in helping women with their personal and business financeMoney management advice you can count on!


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