Household debt is a huge problem in Canada. I wrote about it in 2012. I thought the situation was a crisis then. But it’s gotten worse.

Canadians are in a debt mire, sinking deeper, but continuing with life unscathed. That’s the essence of a recent Manulife Bank survey. What has changed from previous polls? Nothing much. The basic message is the same. Canadians have an insatiable debt appetite. Since 2000, Canadians have grown household debt more rapidly than any G7 country. Today, Canada’s household debt-to-disposable income ratio is a whopping 171%.

Low Interest Rates Fuelling Household Debt Hike

Housing prices continue to soar. Interest rates remain low are likely to stay there for sometime. Therefore, folks have no incentives to apply more prudent stewardship to household finances. People focus mainly on debt service costs, not on total borrowing. And funds are easily accessible.

Then again, the message from the new Federal liberals is, deficit spending (and so, debt) is beautiful. They plan to borrow, spend, and grow deficits. But then, that’s what liberals do. Look at the province of Ontario where liberals hiked spending, grew debt, and increased taxes consistently. They doubled the province’s debt in ten years, to boot!

People are buying homes they can’t afford. They are bidding up prices. In some locations, houses are sold at premiums to listing prices. The recent increased deposit requirements for houses over $500,000 does not seem to be having any effect.

Where will this end? I believe people will continue to borrow and spend. Loans will remain cheap and easy to access. And folks will accept the view that the present will continue forever. That’s exactly the sentiment preceding the subprime crisis and Great Recession of 2008.

Meanwhile, commentators continue to focus on wrong issues. They stress juggling funds between spending and saving for retirement. But that’s not the issue. We must look at basic long term lifestyle changes. It’s our lifestyles that drive spending.

People talk about effects of current spending on retirement. Canadians bemoan reality that they will have to delay retirement. They do not recognize current attitudes to spending as unacceptable. Instead, they complain that their retirement is in jeopardy. Surely it is. And definitely it won’t change with the present spending approaches. Unless we change our spending habits, learn to save before spending, we will continue the present spending spree with cheap loans.

Folks need to stop buying unaffordable vehicles and homes, and stop upgrading on credit. We need to talk about the need to save before spending, and highlight the inevitable effects of present behavior — more debt, more stress, and no savings.

This Manulife statement will lead to a debt sentence:

“The best option is to work with an advisor to get a plan in place well before retirement to balance debt repayment, retirement savings and day-to-day spending.”

We know the typical personal financial advisor is a salesperson, not a lifestyle counsellor. Generally, financial advisors are not regulated, are paid commissions to sell products, and are not independent. There are a few independent advisors who are paid fees for their advice, but they are a minority. The need is not spending counselling, but lifestyle counselling.

Will Canadians voluntarily change lifestyles or will they wait until the economy starts to sink and financial institutions force lifestyle adjustments? Will we learn from the Japanese economy that has not recovered from its housing bubble of the 1980s and 1990s? If you are in debt, take this  quick financial checkup and act based on the results.

© 2016, Michel A. Bell

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