While not as high as before the great recession began in 2008, consumer debt in Canada (the amount of debt individuals have, rather than the amount the government owes) is higher per capita than that of the United Kingdom and America. Household debt hasn’t dropped dramatically since the financial crisis, and consumers seem just as likely to buy products on credit as they were in 2007 — a depressing fact given that the job market is still fragile, and that low interest rates are encouraging people to buy homes.
Financial literacy, which refers to how well people can make informed decisions about their finances, is sorely lacking in Canada. Like an overweight smoker who doesn’t change his life until he has a heart attack, Canadians are risking their financial safety by taking on too much debt, not saving enough and being altogether oblivious to the problem.
There is no shortage of people to blame. For us twenty-somethings, it was easy to get jobs in high school. Entering university, some of us decided to work to pay for our degree but student loans were available, so we imbibed, often more than we should have. We can also blame our parents, who in many cases failed to have the “other talk” with us. The last piece of the puzzle is the lack of financial education provided in secondary schools. Career and Life Management, a required course to earn a high school diploma in Alberta, is a good class in theory, but in practice it fails to provide even a modicum of useful education.
There’s a difference between good debt and bad debt, with taking a loan to pay for education usually considered the former. A post-secondary education is considered a good investment overtime because those with post-secondary education on average make more than those without. Unfortunately, bad debt like credit cards is mixed in, so now many graduates aren’t earning enough to pay the interest on their loans. Many others, while not facing bankruptcy, have no idea how much they’re spending and lack a plan for their financial future.
We are swimming in a cornucopia of personal finance information. The problem isn’t that there is a dearth of information, but that Canadians aren’t following the simple steps required to achieve financial comfort. It seems painfully obvious that you shouldn’t be spending more than you make, but Canadians consistently do this: in the third quarter of 2011 Albertans had an average of over $33,000 worth of household debt, which doesn’t include mortgages. TransUnion, the source of the data, note that Canadian debt stabilized last year after rising for more than six years. But the economy is still too fragile and the decrease was too slight for this to be cause for much optimism.
The Bank of Canada continues to issue warnings about the unstable nature of the finance of Canadians. They further warn that the ratio of household debt to income will continue to rise. That ratio hit 153 per cent in the third quarter of last year, which is disconcerting, especially given the state of the world economy, high housing prices in Canada and an unemployment rate of 7.5 per cent.
The good news for most students is that we’re still young enough to recover from our mistakes. Canadians of all types are risking a lot by remaining ignorant about their finances. The irony of the great recession is that because Canada weathered it better than most countries we haven’t been forced into frugality. While in this case the truth won’t set you free, it will ensure your future is much more comfortable.