September was not a good money month for most Canadians. It was a constant cascade of bad financial news. In particular, there were three studies released around the same time…
Strong economy, stronger debt
For the past decade, The Canadian Payroll Association has polled employees about their financial health. With a humming economy, the news should be good this year. And it is. Sort of.
The Globe And Mail described it like this: “The growing economy has modestly eased some household financial stress. The percentage of people who believe they would face difficulties if their paycheque was delayed by even a single week fell to 44 per cent from a three-year average of 48 per cent.”
Sadly, that’s where the good news ends. Despite average earnings going up by 3.2 per cent, the paper said, “The payroll survey found that 40 per cent of people feel overwhelmed by their debt, up from 35 per cent last year. More than one-third said their debt load got bigger over the previous year, up from 31 per cent in the last survey.”
Disposable income consumed by debt
Despite a robust economy, Canadians are slipping further into debt. Statistics Canada studied “credit market debt as a proportion of household disposable income,” which is the official way of saying, “how much Canadians owe compared to what they have left over after paying bills.”
It turns out, they owe more than they have. By a lot.
For every dollar in disposable income, the average Canadian owes $1.69. That debt includes everything from credit card balances to auto loans to mortgages. Overall, that “household credit market debt” totals more than $2.1 trillion – yes, with a T.
Net worth illusions
If you own a home or want to buy one, you’re surely aware that home prices are skyrocketing. That’s great if you want to sell and terrible if you want to buy, but it may be misleading for everyone.
That’s because research firm, Environics Analytics, has determined that the net worth of the average Canadian has risen more than 8 per cent this year – to $808,000. But that’s misleading because most of that net worth is wrapped up in homes.
In other words, the average Canadian doesn’t have $800,000 in cash under their mattress. Even more concerning, the net worth is based on rising home prices – and those fluctuate. So when prices come down, so does that net worth.
Why does that matter? Because we don’t want Canadians lulling themselves into false financial security. Debt is a growing problem in the country. We need to confront it.
Tying it all together
For a financial counsellor like myself, these three studies are worrisome. The economy is strong and getting stronger, but Canadians aren’t using their windfall to pay down their debts. Financially, this doesn’t make sense. Psychologically, I understand it.
When you have more money coming in, it’s hard to resist spending it on yourself, friends, and family – especially if everyone else is doing it, too.
Yet bad times always follow good times. Recessions aren’t obsolete. Like squirrels hiding nuts for the winter, we all need to squirrel away cash for the lean years.
If you’re deep in debt, use these better times to pay it down. If you don’t know how, Consolidated Credit Counseling Services of Canada can help. You can receive a free debt analysis from a trained credit counsellor, and you’ll learn the shortest way to getting debt free.