Canadians’ debt bonanza: A week of warnings

Suzanne Steel Financial Post                           (please check my comments at end)

In case you somehow missed the news: Canadians are deep in debt and getting in deeper. Our 152% debt-to-income ratio is being burned into our brain.

If you don’t feel badly enough about it already, the past week has seen a deluge of commentary, reprimands and suggestions for how to shape up. Here’s a summary of some of the news on the debt front:

BDO Canada warned consumers against overspending on Christmas. It is after all just a quarter away. BDO quotes a Harris/Decima survey last year that suggested 58% of people used credit to buy holiday gifts and 31% exceeded their budget.

“Canadian debt to income levels are at their highest, so a repeat of last year’s spending could spell trouble for many consumers,” warned Doug Jones, senior vice-president of BDO. And, he added the double whammy of dragging our lagging real estate market and the ever-present threat of rising interest rates into the picture.

“This reality will be compounded by an expected drop in home value and a rise in interest rates which will increase monthly bill payments.”

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Bank of Montreal surveyed Canadians and found that spending money makes us feel better. Those surveyed by the bank say they shop to cheer themselves up and mood-lifting impulse purchases cost them an average of $3,720 a year.

The Bank of Montreal poll found that 59% of those surveyed did impulse shopping and bought items like clothes and shoes and also treated themselves to eating out (which might also make you feel better).

“We’re really struggling to save money on a monthly basis,” said Janet Peddigrew, district vice-president of midwestern Ontario at BMO, who points out that consumers have been spending more than they’ve been saving over the last 10 years.

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CIBC said late last week that most Canadian Baby Boomers (57% of 50- to 59-year-olds surveyed) are willing (resigned?) to working longer if it means they can live better in their retirement years.

The poll also suggested that 24% of Canadian respondents in their 50s plan to carry debt into retirement. A previous CIBC poll suggested Canadians in the same demographic have fallen short of retirement goals, with nearly half having saved less than $100,000 for retirement.

For Canadian baby boomers, carrying debt into retirement usually means a mortgage. This is both ridiculous and completely unnecessary. There are mortgage pay-down strategies that are easy to do (and I’m not referring to bi-weekly payments or any of that crap the bank offers), which allows people to own their homes way sooner. If you could put measures in place now so you owned your home way before the normal age of retirement, isn’t it safe to say you could retire at that age or even earlier?

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To your wealth!
Gord

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