A Cautionary Tale of Debt 

There’s no denying that many Canadians are living beyond their means. Recently CGA-Canada asked consumers about their level of indebtedness. Here are some of the key findings:

• 20 per cent are tapping into RRSPs prior to retirement;
• 25 per cent don’t commit to any type of savings;
• the personal saving rate is in decline (down to 1.2 per cent in 2005);
• consumption rather than asset accumulation is the primary cause of rising debt.

It is clear that social attitudes towards debt are changing. Forty years ago debt was discouraged, even shameful. Today it’s not only accepted but expected. Household debt has been increasing annually, and it appears that many borrowers aren’t aware of the harmful long-term consequences of compounding debt. Consider that more than half of first-time buyers are said to be choosing to stretch their mortgage payments over 30 to 40 years, rather than the usual 25.

Debt is a natural, healthy feature of a well-functioning economy. But one in five Canadians said they couldn’t handle an unforeseen expense of $5,000. One in 10 would have difficulty coping with an unanticipated cost of $500.

Will the financial hardship rippling across the United States be felt here? Perhaps not on the same scale. But if 20 per cent of our respondents said they aren’t prepared for a $5,000 hit, what type of pain would job losses and declining home prices bring?

To survive and prosper in today’s economic conditions, Canadian households need greater financial capability. Some thoughts for consideration:

• Saving is always a good move.
• Don’t view lower interest rates as a green light to borrow. 
• The cost of credit can vary enormously. Comparison shop and read the fine print.
• Resist the pressure to try and “buy happiness.”
• Focus exclusively on your household’s current financial situation and mid-to-long term goals.

Is the roof caving in on increasingly indebted Canadians? No. But what may produce heavy leaks for some could mean collapse for others. Read Where Does the Money Go: The Increasing Reliance on Household Debt in Canada at www.cga.org/canada.

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