Canadians falling into debt trap: report
Published Saturday September 6th, 2008
Counsellor believes best way to stop trend is to teach money management in school
Fancy cars, big houses and other status symbols of our consumer lifestyle are luring Canadians into a trap of high-interest debt as the gap between rich and poor continues to grow, according to a report released this week by a Nova Scotia-based research group.
"The Canadian economy seems to be doing quite well and people are buying houses left and right, but not all of the wealth is being spread around," said Kimberley Tran, co-author of a report released by GPI Atlantic, an independent, non-profit research and education organization that focuses its research on quality of life issues.
The report, which relies heavily on numbers from the Statistics Canada surveys of financial security done in 1999 and 2005, concluded that more households are relying on high cost debt sources like credit cards and payday loans just to make ends meet, which results in them going deeper into debt.
The report said about 77,000 Atlantic households are so seriously in debt that they wouldn't be able to pay off their debts even if they sold everything they owned, including their homes.
The report also says the gap between the rich and poor continues to grow in Canada as fewer richer people control more of this country's wealth.
John Eisner, president of Credit Counselling Services of Atlantic Canada, says the report falls in with what he has been saying for years.
"Consumers are leaning on forms of credit like they never have been before. It's easy to get, and all the credit companies are dangling the carrot in front of people to get their business."
Eisner says easy-to-get credit and peer pressure have sent Canadians on buying sprees.
"People live for the moment. They say 'I can have anything I want right now and pay for it later.'"
But unforseen circumstances can cause problems. For example, Eisner said increases in the price of gas over the last year cost some people about $200 more a month from their individual budget. That extra cost has cut deep into the average family's expendable income.
He says the trap of debt applies to all age groups and income levels. He says lawyers, doctors and chartered accountants are among the more than 8,000 people who look to Credit Counselling Services each year for help getting their debts under control.
"If you make $200,000 a year and you spend $250,000, you are going to be in trouble."
Eisner said the main causes of debt for Canadians are lack of knowledge of money management and budgeting, divorce or separation, illness or injuries in the family, excessive use of credit, a decrease in income, loss of job or coping with a student loan. He believes the best way to fight back against the trend is to teach personal money management in schools.
"Budgeting is boring and it's no fun, but we need to do it."
But for average working-class folk with two incomes, making ends meet is becoming more difficult in Canada.
The report says households in Atlantic Canada experienced the fastest rise in debt in Canada during the six-year period between 1999 and 2005. Atlantic households also saw a larger gap between debt growth (62 per cent) and asset growth (35 per cent) than in any other regions, contributing to its declining share of national wealth.
"Even though the gap between the rich and poor provinces has grown, that doesn't mean there isn't still plenty of wealth in Atlantic Canada. The distribution of that wealth is just very uneven."
She said Atlantic Canada has at least 11,000 millionaire households and even its share of billionaires. But at the same time, thousands of Atlantic Canadians are suffering from severe financial stress.
"They don't have assets to draw on to weather unexpected crises like job loss, sickness, or loss of an earning partner and they can't deal with unforeseen and sudden cash requirements for home repairs, car repairs, medications or other needs that demand urgent attention."
The report, quoting numbers from Statistics Canada, says the problem is the same across the country.
"Millions of Canadians are suffering from increasingly severe financial insecurity and distress during a period of apparent prosperity in which total household wealth more than tripled in the last two decades and the gains of the rich have mushroomed."
GPI hopes the report will inspire governments and agencies to look closer at the trends and find ways to help Canadians get their finances in order, and bring in policies that enhance job and income security, ameliorate student debt loads and strengthen the social safety net.
"We wanted to put some of these issues out there so policy makers can look at the details and spend time examining the problem," Tran said.
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