Study: A $200 Expense Would Put Most Canadians Into Debt

Study: A $200 Expense Would Put Most Canadians Into Debt

More than half of Canadians would be unable to pay their bills if they were suddenly short $200 at the end of the month, a new debt study shows.

The survey, carried out by Ipsos for insolvency consultancy MNP, highlights the fallout from the debt binge Canadians are currently on. The survey found that a staggering 52% of Canadians have no more than a $200 margin to cover their bills each month. 49% of Canadians regret how much debt they’ve taken on as well. One in 10 said they have less than $100 each month left over, but a whopping 31% said they don’t make enough money to cover their expenses.

“With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice and one of the largest practices in Canada. Canadians are well aware of this; the polling suggests debt is causing them a fair bit of stress. Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund.

Household debt has reached an all-time high in Canada, sitting at 167% of disposable income in the fourth quarter of 2016. MNP partially blames the findings on rising house prices, but the data shows that Canadians are taking on more credit card and car loan debt as well.

“Many are in denial, believing they can manage their growing debts. Others don’t know where to go for help or are afraid to address their debts head on,” Lana Gilbertson, from the Vancouver division of MNP, said.

And it only makes sense. According to the survey, roughly 61% said they do not understand how interest rates work. It would explain why so many Canadians end up taking out high-cost loans and increasing their debt instead of finding ways to manage them.

“Many are caught on what I call the ‘minimum payment treadmill,' paying only the interest on their debts, and they are just not getting anywhere,” laments Gilbertson. “If you are using credit to pay for basic expenses, or are pulling equity out of your home to service other debts, it’s time to seek the advice of a professional.”

It may very well be. I’ll freely admit that I have a tenuous grip on understanding finances. I bought the ‘Finance for Dummies’ book when I graduated university, although it wasn’t very helpful. It pretty much told me what I already know: pay off all your debts. But otherwise, there is not a lot of basic foundational material for people to try and understand finances.

Why are so many people essentially living paycheck to paycheck?

The Conference Board of Canada predicted the average Canadian household would pay an extra $1,600 this year, mostly due to fuel and energy costs increases. With the average Canadian already $22,081.00 in debt in 2016, one can only imagine how much worse 2017 is going to be. And don’t make the mistake of thinking this is just a Canuck problem. Two months ago, when the CEO of cell phone insurer Assurant made his claim that “half of Americans can’t afford to write a $500 check,” I thought it was an exaggeration. Turns out it wasn’t. According to a recent Bankrate survey, 57% of Americans don’t have enough cash to cover an unexpected expense of $500. The Federal Reserve actually found that 46% of Americans wouldn’t be able to cover an unexpected $400.

We continue to hear reports about improved job growth across the board, but what no one really wants to discuss is that this growth is not in actually sustainable jobs. According to Statistics Canada, there is a dramatic rise in part-time work- at the expense of losing 30,000 full-time jobs. And in March, full-time jobs in the US market dropped 79,000 jobs. Lower paying, hourly jobs in the leisure and hospitality sector along with the retail sector compose the bulk of any newly reported jobs, while higher paying jobs in the information, utilities, and private sectors become more and more scarce.

Mainstream economists are hard-pressed to find explanations on why salaries and wages remain stagnant, even when the cost of living has increased. We can all acknowledge, even after accounting for inflation, everything is still fucking expensive. There are a whole host of reasons why this is, but let’s address the anger-inducing one. Wages have only been rising significantly for the top 5%, while workers in the bottom 81% have seen their household incomes decline. Since WWII, productivity- or the amount of economic output generated by an average hour of work- has grown an estimated 72.2%, but pay for the typical worker has risen only 9.2%.

What mainstream economists fail to consider is that debt is nothing but future spending brought forward. More and more people are falling into the debt trap as life gets more expensive, and as such must devote future earnings to paying interest and attempting to pay down that debt. This leaves less money available for regular spending or even spending in the future. Most economists are ensconced inside their castles of academia or government, and so have no real experience or only faint memories of working minimum wage jobs or the trials faced by entrepreneurs. It’s not that all these people are living extravagant lifestyles, but any unexpected costs can throw off an entire household budget. This isn’t to say that I disrespect economists, mind you, I just wish they’d acknowledge this problem.

The top 5% continue to earn astronomical wages. An average CEO earns 204 times more than their median worker. In Canada alone, the top CEOs in 2017 will earn the equivalent of an entire year’s worth of salary for a typical employee in just 1.5 days. Using information released by 249 publicly traded companies in 2016, the average compensation of the top 100 CEOs across Canada was $9.5 million- 193 times the average annual salary. That’s up from $8.96 million from the previous year. There are some signs that a growing number of investors are taking action to rein in these excessive salaries, but the fact of the matter is that in our economy of monopolies and oligopolies, the cost of living continues to rise.

The capitalist structure we all love doesn’t exist; it’s all controlled by large, quasi-monopolies who choose what prices to set. We are living in an era in which executive compensation is aligned with shareholder interests, creating unforeseen circumstances. I’m not suggesting we don’t reward top managers and visionary executives for their work, but this model only focuses on short-term solutions that skimp on fostering long-term growth and employee support to drive up stock prices. I mean, look at Enron or Wells Fargo if you want to discuss how short-term goals for profit can undermine company health and morals. Not to mention that it is usually the employees that ultimately suffer.

It’s increasingly difficult to find sustainable, secure jobs. More and more companies are turning to contract, part-time, or even automated sources for labor. It’s a frustrating experience, which is why I’m still a proponent of universal income. Something needs to give.