The True North strong and indebted

At the close of last year (December 14th) The Globe and Mail's headline was "Debt Alert": Canadians now owe more than our American neighbours for the first time in a dozen years.  Canadian's debt-to-income ratio is $1.48:$1.00, a penny higher than the nabes we like so much as free-spending visitors.

And you can't blame mortgages: the average credit-active household owes over $25,000 not counting mortgage debt.

So, all those stuffed shopping bags that I noticed over Christmas were not my imagination! What are people buying? Wii, takeout dinners, snow blowers.

"When they are asking you for things, as a mom, you think 'OK, I can do that'", said one woman interviewed, who owed over $39,000 on three credit cards.

Lady, there's this word: no. I'm critical, yes–but not immune to temptation.

I just got my first-ever line of credit, in case we need a quick chunk of cash for the move. It pops up first in my list of online accounts, and I want nothing to do with it.
But then I saw an ad for a posh Caribbean resort–a bargain for one late-February week, a steal for two–and think, man, today was cold and bleak. Yoga on the beach for me, diving for Le Duc. The Easy Credit Snake flicked its money-green tail to indicate  the luscious apple over my head. 

I will resist, but am shocked at how magnetic that low-interest credit line is. You might decide to incur debt if your disposable income is going up (and some advocate personal spending to pull us out of the lingering recession) but Canadians' disposable income dropped 1.5% during the last half of 2010.

We're still in a slow economy with unemployment at 7.6%, partly because of "a notable decline in youths participating in the labour market". (Source: Statistics Canada.)

Is the lure of low interest irresistible? Do people feel, If I can handle the payments, why not? Is there only so much deprivation they will stand?

What is happening? You don't have to be Canadian to comment!


Rebecca said…
We've definitely created a monster. Told constantly that "we deserve a break", we believe it and set about to prove it! Commonsense is almost non-existent. Self-gratification abounds.

And the few of us who practice restraint look on helplessly as people are bailed out on our dime.

It's a crazy world.
Susan B said…
I think it's partly precisely what you mentioned about real income actually going down. Here in the US, incomes for all but the highest 1% or so have also been stagnant or going down for the last 30 years, yet our expected standard of living has continued to rise. Couple that with the real estate bubble of the last decade when people felt wealthier than they actually were due to inflated home equity, and a culture of immediate gratification (hell, our economy has come to depend on it!) and boom.

We refinanced our home to take advantage of lower interest rates and get some cash out for home improvement projects last year, but have not dipped into that equity for anything else, and our total mortgage amount remains the same as when we bought the house. I also insisted on the shortest mortgage we could swing (15 years). We use credit cards for the benefits (airline miles, cash back) but pay off balances monthly.
Northmoon said…
I don't underestimate the power of advertising to create a sense of need and entitlement. Television especially sets everyone up to expect to live at a certain level. For example Sex in the City single working women with endless desiger wardrobes, having lunch out all the time - a fantasy, but some young women are set up to try to live this way.

I read recently that English TV shows working class families like Coronation Street, but American TV shows the wealthy as in Housewives of New Jersy etc. The norm gets skewed higher, and everyone gets easy credit to try to follow.
Mardel said…
I find it upsetting to see so many people indulging in this kind of fantasy, including my own (step)children although I have learned not to discuss that subject with them unless they ask for advice. I can only shake my head when they tell me their accountants tell them they must cut expenses and they tell me there is nothing to cut. They can't seem to wrap their heads around the idea that expectations have to be adjusted to fit income, and temporary "setbacks" have extended from months to years.

I use credit cards for most purchases, but I also keep track of my spending and pay off my balances monthly. Last year we took out our first ever home-equity line to pay for some of the landscaping around the house. In the past we've saved for everything before spending it, but we had an opportunity to continue working with an excellent mason who was suddenly available as the company he worked for went under, and he hadn't yet lined up connections to build a private clientele. We spent the amount we could easily pay off within a year and we have already made a big dent in that. Our mortgage was paid off years ago, so the amount of the line is only a fraction of the equity in the house.

Having the equity line proved useful when I found myself suddenly having to do some home alterations to accommodate a sharp decline in my husbands ability to get around and allowed me a little peace until long-term care claims are finally approved, even if I extend the payments out over two years instead of one. Better to take that money from the equity line, than to take extra money out of an IRA, even if I end up paying it off over the full 10 years, which I would never allow. I am too uncomfortable with debt to allow that.
Toby Wollin said…
For those of us who, ahem, are of a certain age, we can remember when no one but relatively senior management in a company had "A" credit card and that was probably American Express, used for travel and the chits passed into the company accountants along with the expense report. I have a pretty close window on when that all changed -- the early 80s under R. Reagan, when the banking laws were first loosened. Then, all sorts of credit cards flooded the market, from stores like Sears to Visa and Mastercard. By 1985, I had changed jobs and had joined the 'credit committee' for our company credit union. Already, we saw people in huge trouble - they had multiple store credit cards plus at least one bank credit card. This group included people working jobs such as janitorial staffing, so I know how far down the financial food chain the banks and stores were reaching. This was the period when we used to get multiple credit card solicitations in the daily mail. The telephone solicitations came later. But I saw, while on that committee just how bad this had gotten - no bank or store was checking on how much money you made any longer - if you worked, that was enough (college students with no income getting credit cards came later).We had people applying for debt consolidation loans just to try to catch up - our method was definitely tough love: We used to demand a meeting with the person(or couple as the case was) and they had to hand over all of their credit cards. If they had Sears, that was the one we gave them back because then if they had an emergency with a water heater or furnace, they could get that dealt with. otherwise, we...took...them...all. There is nothing quite like seeing someone bust into tears when you take away their credit cards and destroy them in front of their faces. But we felt it was the only way. The really sad part was even though the credit union put notations on the credit reporting services for these folks, most of the time we would see them a year later, back up to their eyeballs in new cards. The system is completely amoral - and of course this was even before all the fraudulent lending on the mortgage end.
dana said…
We were taught that you only go into debt for education and your mortgage, and that you'd better make damn sure you could pay those monthly installments. I don't know what's gone on.
Duchesse said…
Rebecca: Here, individuals do not get bailed out, unless you count the limited nonprofit credit counseling services.

Pseu: Immediate gratification (as you and Rebecca mentioned) is a core issue. Is it strictly advertising or have we essentially convinced ourselves that if some people have it, we must, too?

Northmoon: I've seen that referred to as "disneyfication of class"; in Disney films supposedly middle class neighbourhoods are way posher than they look n real life; every home on a huge landscaped lot.

Mardel: My sons deliberately have very low-credit cards. One got in a hole, and I hope learned his lesson.

I have not touched the LOC but will if we need to pay moving expenses up front, etc.
Duchesse said…
Toby: I see both sides of it. Certainly cards were offered to people without capacity to pay. But access does not equal abuse. I believe the card companies are offering financial management courses at the high school level (is that right?) And teaching kids how to handle money is a parent's responsibility.

I am of the same vintage as you, and remember layaway, a sound way to get what you wanted, but not immediately.

Dana: Few young consumers calculate the actual cost of the loan. Some lenders are far better than others about disclosing actual cost in clear English.
Anonymous said…
We paid off our mortgage last July...only to have a vehicle fail us just before a vacation. Aaargh. This past weekend we purchased the first new bedroom furniture of our we are in debt again. Sigh.

Having the mortgage paid off has brought to the fore essential differences in our approaches to money.
LPC said…
If it's possible that people are rational around money, this could be due to the historical tendency of prices and financial markets to rise, causing borrowed money to be even better value. Or maybe we are just bad at self-control:).
Duchesse said…
LPC: Your first scenario would work if disposible income were not dropping for most earners and if credit instruments such as cards and mortgages would lock in their rates.

Markets rise but also correct and, as US homeowners learned, sometimes plummet. Some people do not have decades to recover, which may be why they are piling on more debt now.

Terri: I'll bet it does! I try to avoid depreciating assets so do not buy new cars and sometimes buy used furniture aka "antique"- and that can end up costing more :)
Rubiatonta said…
I agree that there's a lot of keeping up with the Joneses going on -- and try to be aware of my own tendency to make myself feel better by buying stuff -- and I also agree that the stress created by the decline in real income may push people to make bad decisions.

It's also true on this side of the border that as people's benefits at work have receded (i.e., needing to pay more out of pocket for health costs), or their employment has gone from full-time to part-time with a corresponding cut in income and benefits, it's easy for them to get into the habit of putting consumables like gas and food on credit cards. I remember going through a rough patch a number of years ago and doing the same thing -- even though I knew that it was a slippery slope.

I don't own a home, never have, and don't really aspire to -- after living in NYC and N. California as a single person, I came to the conclusion that it wasn't for me. I realize that I'm in some ways a radical for refusing the "dream of home ownership," and I'd like to suggest that for many of us at this point in world history, being renters is a much more sensible option. Heresy, I know, but there it is.
Tiffany said…
Is it an inability to delay gratification? Of course everyone wants to treat themselves sometimes, but I have a morbid fear of debt - we have a mortgage and a credit card that, like other commenters, we use for the benefits and pay off in full each month. I hope I'm teaching my children the same commonsense -it's hard when 8-year-olds have iPhones and a new outfit every week.
Susan said…
I was raised in a time when "well dressed" meant having five dresses to wear to school each week. And, one pair of school shoes. This was through high school.

I also remember well not having a credit card--and this was after I married.

And yes, we have paid off our mortgages (three homes, one bought with cash). I don't own expensive handbags, only a limited wardrobe, and consider "extras" to be luxuries.

I DO like buying books on Amazon--it's a bit too easy.
materfamilias said…
I try to be careful about making pronouncements about finance, aware that many -- especially younger but also those making less money -- see us as "lucky." And I acknowledge our good fortune readily, but we have always lived within or below our means and only very, very rarely, have we ever had debt beyond a mortgage or, for a few years, a car loan. Anything else that we couldn't afford we went without, but we were always able to dress and eat and furnish our homes and entertain ourselves thanks to skillsets that I'm not sure are as readily available. Stretching a dollar at the grocery store requires a knowledge of cooking BUT it also provides entertainment and a sense of satisfaction that fills up that need for more. Ditto for sewing and repairing clothes or refinishing a hand-me-down couch. And not only the satisfying skills are involved but also the affirmation of a set of values. I'm impressed by the number of young people who are trying to re-learn these skills, but saddened by the large-scale loss of such inexpensive satisfactions over the last four or five decades.
Duchesse said…
Rubi: good point re vanishing job/benefits. I've seen scenarios where investing is a better strategy than home ownership for building net worth but that was before interest rates plummeted. Given the poverty rate among elder women, I'm all for some kind of disciplined plan.

materfamilias: Your post made me realize I can't do the things m mother could: turn a collar, remodel a coat- and I am not as economical a shopper, do not make all my own bread. I, never shy about making pronouncements, will say it is good life experience for everyone to learn to live within a budget. I was happy the day my son iving on his own learned how much cleaning products cost!

Tiffany: One of my sons works part time in a video store and talks about 9 and 10 year olds who complain that their iPhone is a "crappy older model". He's really disgusted, and says it is the parents' behaviour driving it.

Susan: I agree that what is 'enough' seems to have crept steadily up. In my midwestern American childhood, even the richest family did not own three cars.
An said…
Could it also be that parents need to start teaching their kids this stuff sooner rather than later? I grew up in Asia and was always taught never to roll over credit card debt as it was a killer. Mr micawber's advice to David copperfield seems timeless:)
HB said…
I am similar to Rubiatonta in that I have never desired to own a home. My occupation (architecture) certainly does not supply the kind of income to reliably make a mortgage payment of my own and I am busy paying down education debt. Still, the siren's call almost had me take that path as credit was flowing so easily on this side of the border. There was a huge amount of social pressure to enter mortgage debt and there still is that same kind of pressure to "keep up." It takes a lot of discipline not to zone out and overstep ones budget.

My grandma taught me to sew, cook and balance a checkbook. She also emphasized taking shoes to be repaired, mending clothing and in general caring for all my personal items. It's a larger part of budgeting than it seems on the surface because caring for things requires an investment of time. I have met many people who never take shoes to be repaired, for example, or even really knew that was an option. Just toss them out and buy new. Our whole culture has been honed to think that way.
lagatta à montréal said…
For one or two people in an urban area, I don't think making one's own bread is much of a saving if any. I know how to cook and bake bread, but only bother with pizza and other flatbread. One sad point in the modern economy is the decline in quality of many common consumer goods - nobody will refinish an IKEA dresser; the damned things are made of glue and will fall apart before then. And unfortunately a lot of footwear, and not just dirt-cheap brands, is no longer sturdy enough to resole much.

A lot of urbanism, as well as models shown in films, TV and magazines, is designed to encourage overconsumption, such as developments that require car use by all adult family members.

Most of the people I know who are in debt are having problems due to a severe downturn in jobs and contracts, not overspending. Though I do see a lot of heavy consumer spending among certain young acquantances.
coffeeaddict said…
It was really refreshing to read this post and all the comments. I noticed that most people who commented refered to the past spending habits of their youth compared to the situation today. Although I belong to a younger generation (I was born in the early 80-ies) I have a similar experience growing up. I come from a small country, Slovenia, once part of the former Yugoslavia.
In those days we didn't have many things, not because we couldn't afford them but simply because there was no need for 10 pairs of new sandals a season, etc.
Apparel was of a spectacular quality unknown to today's standards ( I still have a few of my mum's old wool suits and silk shirts, so I know what I'm talking about). In those days having a seamstress was 'de rigueur' and didn't cost a fortune. We also mended our clothes, hade them altered and took our shoes to the cobbler.
Today we are influenced by the industry through magazines, stylish? TV series like Sex and the City and a myriad of fashion bloggers trying to emulate them. It's all pure fantasy, it's unreal, it's unnatural and plain disturbing.
What ever happened to owning just one pair of boots, a coat, one black, one brown leather bag and one summer straw bag?
I am continually shocked and amazed by the sheer volume of apparel some bloggers (mostly Americans) have amassed. Even though most of these items are thrifted and are dirt cheap that still isn't a good enough reason for owning 30 odd coats and more than a 100 pairs of footwear.
is it an inability to delay gratification? Of course everyone wants to treat themselves sometimes, but I have a morbid fear of debt - we have a mortgage and a credit card that, like other commenters, we use for the benefits and pay off in full each month. I hope I'm teaching my children the same commonsense -it's hard when 8-year-olds have iPhones and a new outfit every week.

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