Cdns no better than gov't at spending

(Fotolia)

(Fotolia)

John Robson, Parliamentary Bureau

, Last Updated: 1:18 PM ET

Canadians love to complain about government debt. Unfortunately a general attitude of instant gratification governs our personal as well as public finances.

The latest study from credit-monitoring firm TransUnion says the average Canadian's consumer (non-mortgage) debt hit $27,485 at the end of 2012, up 6% since 2011.

And the Vanier Institute's ongoing survey of family finances found that by 2007, family debt including mortgages had risen seven times faster since 1990 than income, to over $80,000 per household, a record 131% of family income. By their 2011-12 study it was $103,000, up 80% in real terms since 1990 to yet another record 153% of income.

To be sure, around two-thirds of our debt is mortgage debt, backed by valuable homes. But as Maclean's magazine noted in 2007, thanks to "historically low interest rates" our total debt had risen by 90% in just one decade.

Mortgage and non-mortgage debt are rising essentially in tandem. And the Vanier Institute, while noting that the average family is worth just over $400,000 despite all this debt, warns that much of that net worth depends on house values that appear dangerously inflated thanks to "record low interest rates." But interest rates can't be the whole story because these figures form a long-term trend.

Canadians used to be frugal. In 2004, poverty scholar Chris Sarlo noted that as recently as the early 1980s we saved around 15% of our personal disposable income, about one dollar in seven. A decade later it was one dollar in 11 and by 2001 one in 20. Statistics Canada data suggest it is now down to around one dollar in 26.

The Vanier Institute says annual household savings (adjusted for inflation, in 2009 dollars) "plummeted by two-thirds" between 1990 and 2011, from $8,041 to $2,692. In short, we're not saving for a rainy day.

The culture clearly has changed. A credit card company fairly recently offered me (while misspelling my name) "a very competitive interest rate" to borrow money for "a boat. Or a ski club membership." Once upon a time insinuating that its customers might borrow for such indulgences would have risked offending them. But by the time I got that solicitation, according to the Certified General Accountants of Canada, household debt had been rising faster than disposable income and assets for three decades.

Young people in particular cheerfully carry debt, don't budget and use credit cards to tide them over when they spend more than they earn. And by 2006, over 1.5 million Canadians a year were using the payday loan industry.

It might seem people don't understand money. But the latest Canadian Association of Chartered Accountants annual survey of household finances showed nearly half of us admit we couldn't make our mortgage and debt payments if interest rates went up. And an astonishing 59% of 2009 Vanier survey respondents said they'd be in trouble if their paycheque was one week late. We know we're being irresponsible. We just don't care.

How did we get so profligate that Finance Minister Jim Flaherty, after hiking the federal debt nearly a quarter, hectored us about reckless borrowing and tightened up mortgage requirements? Well, his administration is determinedly keeping interest rates low, to keep the federal debt affordable and to "stimulate" the economy by, gosh, encouraging us to borrow and spend. But it's also the social programs today's Tories defend as staunchly as the Liberals and NDP.

Politicians discuss them as if they are permanent, indispensable parts of the Canadian identity. But they're actually quite new. The Canada Pension Plan started in 1966, Pearson's medicare in 1968 and the Trudeau Canada Health Act dates only to 1984.

Before they existed, you had to save money for retirement and against misfortune. Now the state will hurl it at you if you mess up your life. People rationally adjust by spending more on ski vacations and less on RRSPs. And after a while these choices become bad habits.

The irony is, with an aging population putting more and more pressure on health care and retirement programs, young people will have to forego consumption to fund them...just not for themselves. Better cancel that ski trip. And your retirement.

Oh, yeah. And stop borrowing.

 


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