Do Canadians have a laissez-faire attitude towards debt? High consumer debt is the result of income to cost-of-living disparity, paired with burdensome high interest rates.

A new report on debt from CBC news repeats a familiar theme that debt levels are out of control because "interest rates are at an all-time low, life is great and the economy is not bad… People seem to have a laissez-faire attitude toward debt right now,” says Laurie Campbell, CEO of Credit Canada Debt Solutions.

I say that’s laissez-unfair.

To bring debatable laissez-faire macro-economic theory into the conversation, just confuses the discussion. What the heck does laissez-faire attitude mean? How do you define it? How do you measure it? Where do these consumers live? What do they look like? What kind of cars do they drive? Etc.???

Firstly, the familiar theme being recycled like oxygen-deficient air, blames high household debt levels in Canada on cavalier consumers who are racking up humungous debt loads because of low interest rates.

It seems so obvious and self-evident to those who proselytize this gospel that there is no need to prove anything. Or, if some attempt is made, it will almost always be some kind of a bank survey of its own customers – not exactly scientific or neutral.

Their reported results lack any real details about the research sample – age, income group, single, single parent, married, divorced, separated, widowed, family size, geographic region – mortgage or no mortgage - and so on.

The devil is definitely in the details. No-one questions anymore, the difference between mortgage debt and consumer debt. It’s simply lumped together and called household debt. This really muddies the conceptual waters because credit cards and consumer loans are very different from mortgages.

Without going into a lot of detail due to the restrictions of space in a blog, let me say that mortgages are a secured debt on an asset – real estate. Many of these mortgages are insured by the government so the bank is somewhat protected against losses.

The size of mortgages are partly dictated by real estate market conditions including supply and demand and location – large urban centres – rural areas, northern and coastal communities etc. Individual consumers do not control the price or cost of housing. Interest rates are only low on mortgages, not consumer debt like credit cards.

Consumer debt is more personal, individualistic and is driven by choice, lending policies, culture, and circumstance. Interest rates are not low on consumer debt.

The various groups that lump both consumer and mortgage debt together and call it household debt seem to believe that raising interest rates is the way to stop reckless spending and lending.

They often resurrect the US credit crisis of 2007-08 as a good reason to do this even though the American credit crunch was fueled by widespread institutional fraud -- especially mortgage lending and borrowing practices -- and not consumer debt.

What’s needed for high interest bearing consumer debt is lower interest rates. Current rates are hard to justify with the Bank of Canada’s prime rate at a historical low of 0.75% while consumer debt in Canada has hit a historical high of $533 billion (excluding mortgages) in 2015.  Perhaps more attention needs to be directed to helping individuals and families climb out of their freefall into a morass of unmanageable debt.

It’s not just a profligate culture that fueled the rise in consumer debt. It’s also a culture of desperation. Many bonafide research papers as well as Statistics Canada affirm the economic disparity between the very wealthy and middle and lower income families.

The cost to raise children, the cost of post-secondary education, the cost of housing, the cost of gas, internet providers, cell phones etc. without income increases adequate to meet all of the necessary family expenses, have all contributed to the impoverishment of the middle class.

Many of these individuals and families struggle for years with their dependency on credit because they cannot make ends meet with their incomes or pay down the debt.

It certainly has been my professional observation over the last 40 years that credit has come to the rescue for cash strapped governments, corporations and consumers. A quiet collective wink of approval has allowed everyone to avoid the realities of spending only what they earn - leaving individuals and families (as well as some governments and corporations) to sink into a black hole of never-ending debt accumulation.

It’s time to give individuals and families a light at the end of their debt tunnel that will actually result in debt reduction and debt freedom. One that addresses unjustifiably high interest rates on consumer debt like credit cards. One that will result in a more level distribution of wealth, fairer taxes that capture the wealthiest in society, and in net incomes sufficient to raise children, send them off to college and to meet all of the essential family expenses without borrowing from Peter to pay Paul.

Margaret Johnson

CEO Solutions Credit Counselling Service Inc. and Women and Money Inc.

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.

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