The Bank of Canada reported January 2013 that seasonally adjusted total consumer credit (excluding mortgages in Canada) was $513 billion in January which is up $13 billion from November 2012. That is a colossal jump over just 2 months. That tells us that us Canadians have borrowed an additional $13 billion over the Christmas season and now sit on a $513 billion mountain of debt.
Recent stories in the media draw attention to a number of retirement problems, retirement planning, and the fear that people will not be able to retire at the age of 65. Many of those that eventually do retire will undoubtedly suffer due to poor pensions, ongoing debt obligations and ever-increasing cost of living increases.
Inflation has not been assigned its proper place in the struggle of income versus the accumulation of debt for lower, middle and limited income families. Part of the reason for this refers to the definition of inflation itself. We repeatedly hear how low the inflation rate is, as the price of gas and food skyrocket. A lot of people don’t feel any immediate pain because they use their credit cards. The pain comes with escalating debt obligations and the interest rates charged for using the credit. Recent food and gas prices have ruined the best family budgets.
Income tax is another item excluded from the consumer price index upon which the inflation rate is based. January is the time of the year that the realities of income tax knock on our door. I have a good friend, a retired pensioner, who received a reassessment tax notice for $600 for an RRSP he cashed in 2010. He received this New Year’s eve. You see, RRSP’s are taxable when they are eventually cashed in. In this case he ended up with a new CRA debt for the New Year.
It should be noted that RRSP’s play a significant role in many people’s lives. For many, they save too much because they are so eager to get a tax reduction. Many even borrow to capture the tax savings. They don’t understand that this is only a tax deferral. At some point in the future, they will pay tax on it and unfortunately, an aging population is cashing in their RRSP’s and have new taxes to pay.
Anxiety from financial advisors, credit counsellors, bankers and government officials about household debt in Canada dominated the financial airwaves for most of 2012, culminating in the federal government’s changed mortgage rules in June 2012.
Are you paying off your debts faster? Not according to the most statistics, people and credit professionals.