Breaking the debt cycle
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Nov 14, 2012  |  Vote 0    0

Breaking the debt cycle

Ottawa East News
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If you’re in debt, you’ll probably read this headline, turn the page and go Christmas shopping at the mall with your credit card.

It’s human instinct to ignore things that make us uncomfortable. Moreover, our imperfect psychology often leads us to do precisely the opposite of what we should. It’s the reason those disturbing Health Canada ads on cigarette packs make addicts smoke more. It’s the reason we fail to read the calorie count on the pack of a two-bite brownie before taking 10 bites and it’s why we turn the channel off when we see those infomercials about children starving in Africa and head to the local Chinese food buffet instead. 

But we are a nation in debt. And chances are, even if you’ve managed to read this far, you are carrying some sort of debt. So please, read on.

In mid-October, the average debt-to-income ratio of Canadian households hit an all-time high of 163 per cent. That means for every dollar we earn in a year, we owe an average of $1.63. To put it simply, if your household income is $100,000 and you carry a mortgage of $163,000, or if your household income is $50,000 and you owe $81,500 on your credit card and loans, you fit the debt profile of the average Canadian.

As a result of this news, finance ministers across the country went all nanny-state on us: “What’s wrong with you people? Get your fiscal houses in order.”

Indeed, every few weeks or so, federal Finance Minister Jim Flaherty finds it prudent to stand behind a podium to at some posh event and collectively slap the wrists of Canadians for being so careless with their funds. But he’s hardly leading by example. Despite inheriting a massive surplus from his Liberal predecessors, Flaherty’s government racked up the biggest deficit in Canadian history in a move to – guess what? -- boost consumer spending in the wake of the recession.  In other words, governments tell us to spend one week and then reprimand us for doing so the next, all the while committing the sin of overspending themselves.

Of course, governments like to couch their overspending in terms like “investing for the future.” The problem is the future never comes, so they just leave mammoth debt balances for the next generation without any accountability whatsoever. As a result -- for governments and the citizens they govern -- money has taken on a rather mythical quality.

We live in a time where the value of money has become meaningless for most people. With credit readily available, most mid-thirties professionals I know carry student loans in the tens of thousands of dollars, along with mortgages and lines of credit balances. And frankly, they don’t give a damn as they hand over their gold cards to “pay” for that delectably over-priced glass of red wine at after-work drinks. Because they have lost any sense of reality as it pertains to the value of a dollar.

Never mind the fact that half of Canadians would likely find themselves in a food bank line should they miss a single paycheque. Just as there’s always another squeeze of toothpaste in the bottom of the tube, it seems there’s always more money available in the credit line -- or what I like to call, the pot of gold at the end of the rainbow.

Has it always been this way? I don’t know. Part of the problem is that numbers like that 163 per cent are relatively meaningless to most of us. And we are not wired to think about the future value of money. A more simple fix is to think about money this way: What comes in each month must be greater than what goes out.

Chances are if you’re in debt, you didn’t read past the first sentence of this column. But if you’ve made it this far, I’d like to offer up the first step to ending the cycle of debt: Keep your receipts ... for everything. Stuff them in a shoebox in your front closet and have a look at the end of the month. It’s the only way to find out what you’re really spending and the first step to becoming debt-free.

Of course, if psychological theory is anything to go by, you’ll probably take one look, burn the box and go Christmas shopping at the mall with your credit card.

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