Sifting through fact and fiction in the Fraser Report
Don’t worry about debt, you can handle it!
These headlines may come as a surprise to most consumers, but according to a new report from the Fraser Institute, Canadian consumer debt isn’t the doomsday concern financial experts and government officials would have you believe it is.
Or so it may seem….
“While the Fraser Report takes an interesting look at consumer debt, I’m concerned we are not getting the whole picture,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc. “Canadians continue to borrow at record levels, and are setting themselves up for financial failure.”
Before you rush out and rack up more debt, because you’re in debt denial and it ‘isn’t so bad to borrow’, Schwartz and the team at Consolidated Credit have taken the time to sift through the fact and fiction in the Fraser Report and are providing hard-working Canadians a dose of financial reality.
Fact: Consumer credit is a relatively new device.
Fiction: It’s difficult to judge what the optimal level of debt is.
While consumer credit as we know it (credit cards, etc.) only came into widespread use in the late 1960s, the concept of debt has been around for centuries. The fact of the matter is, Canadians continue to increase the gap between income and debt, which has resulted in half the population living paycheque-to-paycheque.
“The average Canadian currently owes $1.63 for every dollar they earn,” adds Schwartz. “When you owe more than you earn, there is a solid chance you will eventually find yourself in financial failure.”
Fact: Interest rates have remained stable at all-time low levels.
Fiction: Thanks to low interest rates, the burden on incomes of servicing debt has never been lower.
It is true that many Canadian households have made positive gains by taking advantage of low interest rates. But these low rates typically only apply to mortgage and other secure forms of debt.
Unfortunately, these low rates do not apply to unsecured debts like credit cards, pay-day loans, and store financing or personal loans.
“When you are paying 18% or more in interest charges on your consumer debt, there is little left over for personal savings. This is where the real financial danger lies. We are carrying huge debt loads with little or no savings. While consumers may be managing their debts today, they are not prepared for any future financial emergencies,” says Schwartz.
Fact: Previous generations (Depression and WWII era) viewed saving as a virtue and debt as a sin.
Fiction: Younger generations are using debt rationally to improve their lives.
We may have larger homes and nicer cars, but it is difficult to argue that we are using debt rationally. The reality is consumer bankruptcies have steadily increased every decade since 1980. When you depend on credit to satisfy your wants or just to get by, there is a good chance you are heading down the road to financial instability, or worse – insolvency.
“According to Statistics Canada 61% of debt is held by individuals 45 or younger,” notes Schwartz. “Our record high levels of household debt, combined with record low savings levels makes some Canadians particularly vulnerable. We need to take a page out of our parents and grandparent’s book and start viewing savings as a virtue.”
“If we start saving at even half the rate we spend, our debt levels really won’t be so bad.”
Debt is always going to be a concern, but when it becomes more than you can handle we are here to help! Call 1-888-287-8506 today to speak to a trained credit counsellor and find out how you can get your budget under control. You can also try our Free Debt Analysis online and a counsellor will reach out to you.