Pam Lavers
Co-Founder, The Tower Group

Our love affair with debt is getting risky

Have you noticed lately, when you’re really talking to friends, family or even your financial advisor, how often the topic of managing monthly expenses comes up? It seems to be that more and more people are struggling with cash flow and there just doesn’t seem to be enough to cover everything. For many people, their relationship with money is getting uncomfortable and the strain isn’t just limited to your circle. Right now, Canadians as a majority are financially managing only month to month and many are living in a continuous debt and spending crisis.

Some tough-love facts about debt in Canada is that in 2016, Canadians added more debt to their balance sheets faster than any other time in history.

  • The average Canadian currently owes $22,595 of non-mortgage debt.
  • Breaking it down another way, the average Canadian owes $1.64 for every dollar of take-home income.

And, nobody loves debt more than Albertans – we’re leading the way nationally in annually increasing debt loads.  The long tail of the oil slump is still hitting consumers. Edmonton's non-mortgage debt hit an average of $24,354, with delinquencies rising to a rate of 3.7 per cent. And Calgary fared worse, hitting average consumer debt of $28,184 and delinquencies soaring to a rate of 2.9 per cent.

Owing money when you’re young is nothing new, it’s expected. But shockingly, the fastest growing age demographic of debt owners is seniors. A survey by Equifax Inc. found that debt for Canadians aged 65 and older, not including mortgages, was $15,651 in the second quarter of 2017. Seniors’ debt grew by 4.3% over the past year, outpacing every other segment of the population over age 18.

The extended, abnormally low interest rate environment adds to the appeal of debt. It’s enabled Canadians to carry massive debts, since monthly payments appear manageable. We’ve become addicted to the short-term romance of “monthly payments” rather than the overall price and costs of things, whether it’s a bigger house, a new car, a vacation, a renovation or new furniture. The thought appears to be, as long as we can cover the monthly payments, why not?

We should always be very aware of how major banks tempt us with offers of access to more of their credit, whether it’s through a bigger mortgage, home equity line of credit or credit cards. They love it when we take them up on offers of more debt – it’s where they make a big portion of their profits after all. It’s hard not to be impulsive, most of us are, especially in our we-deserve-it-now culture. Our impulsiveness plays right into the hands of lenders who want us to spend more money using credit, when actually we probably shouldn’t. The banks only profit when interest rates go up, and we as consumers lose, often losing a lot more than just that original debt.

Managing your spending habits takes strong discipline, but you’ll thank yourself when you’re not worried about your monthly cash flow. With good habits now and over the long term, you’ll nurture a satisfying, healthy relationship with your money. And, you’ll enjoy more abundance and a less stressful (and thereby healthier) future.