The availability of credit and the willingness of Canadian consumers to take on large debt loads has evolved over the last few decades and it is not for the betterment of our personal finances. In the past 20 to 30 years, Canadians have witnessed: an incredible growth in easy access to credit though such avenues as pay day lending and other short-term lending institutions; a willingness to incur debt; and changes in the mortgage rules. This has ultimately lead us to the situation where many Canadians, including seniors, are finding their lives are dictated by their debt load and they are struggling to make ends meet.
We are more tolerant to debt than we have ever been historically. Back in the early 1990’s, our Canadian debt to income ratio was such that for every dollar made, we owed 90 cents. Today, this ratio has increased such that for every dollar earned, we owe $1.67. One can speculate why we have allowed this to occur, but we cannot ignore the strong influence of consumerism. While there are more obvious reasons such as layoffs, accidents, unexpected expenses and other reasons for people facing economic hardship, we cannot ignore what we see around us daily which in some ways is more insidious. We are bombarded with advertising and somewhere along the way, we, as a society, have developed the notion that we deserve those consumer goods. There was a time when people saved to make their purchase. It may have meant there was only one car, or one television in the house, but savings were used, rather than taking on more debt to make the purchase. This is no longer the case today as we typically want instant gratification and will make the purchase relying on credit to do so.
Being online and social media also affects us as our preferences. We are now creepily tracked and monitored. For example, how many of us have made a google search only to find an advertisement about that very product in our next Facebook visit? Furthermore, recent studies have shown that many people find it somewhat depressing looking at such social media applications as Facebook, only to see what appears to be all their friends and family having a wonderful time, eating gourmet meals and taking amazing vacations. Of course, we tend to forget people are not going to post the negative things in their life in the same way. This leads us to develop the notion that we too must eat out at fancy restaurants, travel, buy fashionable clothing, buy impressive automobile etc. for fear we will fall behind or miss out on life.
What is somewhat surprising in all of this is that the generation that at one time would live by such sayings as “a penny saved is a penny earned” is now facing high debt loads themselves. We see more seniors now trying to get back into the work force to pay off debt- which is not easy by any means. These seniors have often held off on seeking help, due to embarrassment, until their debt load has reached a critical level.
In a period of slowing rising interest rates, there is no wiggle room for many people. We may well see an increase in insolvencies in due course. Interest rates rising will also likely slow the housing market making it a challenge for people carrying a lot of debt to sell for top dollar.
However, there are many avenues for people to seek help. They could consider selling an asset, consolidate their debt, perhaps receive help from family members or seek credit counselling. For seniors 55 and over who own their own home, a reverse mortgage may be the perfect solution for them to allow a consolidation of debt and to let them continue with the worry of monthly mortgage payments. This is but one solution, but it is an effective one and one which should be considered.