This important article Canada’s Middle Class is on the brink of ruin, should be read with empathy, but also with recognition of the practices and behaviors that have strip-mined families for short-term spending at the expense of the country’s longer term health and stability. Easy access to credit, risk-sellers handing out financial ‘advice’ (No Scotiabank, Canadians are not ‘richer than they think’) relentless lifestyle marketing, poor wage gains, and a lack of personal discipline, are all part of this toxic mix:
“Canadian households are now carrying more debt than those of any other G7 nation. By the end of 2016, Canadians owed a total of $2 trillion in mortgages, consumer credit, and loans. Millions of us now report living paycheque to paycheque, spending almost everything we make.
The reason our debt level is so troubling to economists is that we appear to be nearing a breaking point when it comes to our ability to manage it. In a recent survey by Canadian Payroll Association, almost 48 percent of respondents admitted they wouldn’t be able to make ends meet if their paycheque were late even by a week. Canadians, in other words, don’t have much of a cushion to handle an economic shock—such as a jump in interest rates or a loss of income. Yet thanks to all the cheap credit being doled out by banks, many of us can bridge our financial shortfalls for years before realizing we are on the brink of ruin.”
This particular story is about the financially fragile majority who have debt and little net equity. Yet few people appreciate how vulnerable 17 years of debt pumping has made even the wealthiest 10% of households today. This fortunate group–mostly boomers ages 51-71–are now at or nearing the end of their working life, while holding the bulk of their net worth in low, zero and negative-yielding real estate and financial assets at obscene valuations with massive downside risks.
While the highly indebted no doubt feel vulnerable, in the end we don’t have debtor’s prisons, those who can’t repay what they’ve borrowed, stand to ‘lose’ debt, through default and bankruptcy. It is the minority holding assets today, that stand to lose net worth in the deflation cycle ahead. It would behoove them to appreciate the connection here.
