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.

  •  Felix  Baumgartner (this was the stratosphere free fall from space to earth)
  • Getting an Ipad 5  
  • Turning 8
  • Christmas presents (thanks Santa)
  • Graduating to Grade 3 piano
  • Winning 4th place in an inter-school competition
  • Singing in her school’s Christmas play, “Miracle on Bethlehem Street.”

  Other opinions regarding the most significant events of 2012 have been identified by the media as follows:

  •  Hurricane Sandy
  • Newtown Connecticut Massacre of 20 elementary school children no older than 9 years of age and six school employees.
  • Kate Middleton’s pregnancy and the suicide of one of her hospital’s nurses, Jacintha Saldanha, after receiving a prank phone call from two Australian DJ’s.
  • The 2012 Olympics
  • Costa Concordia Crash
  • The SOPA DEBATE – the Stop Online Piracy Act (SOPA) is a complex issue that involves freedom of speech, copyright infringement and how governments negotiate agreements without public discussion.
  • Penn State Sex Scandal
  • Trayyon Martin Shooting
  • Whitney Houston’s premature death

 I mention all of these items because I think they were important elements for characterizing the 2012 landscape. However, I would have to put Debt on the very top of my list because it has finally received the public and media attention it deserves. 

Basically, 4 types of debt have been highlighted:

  1. The European Debt Crisis
  2. The US Fiscal Cliff
  3. Household Debt (in Canada)
  4. Consumer Debt (in Canada)

 

The European Debt Crisis

The European debt crisis involved government debt and how a number of countries were insolvent or nearly insolvent. Greece received the most media coverage as it struggled to meet its international debt obligations and public demands for government services. Greece, Ireland, Italy, Portugal and Spain joined the list of troubled countries.

The US Fiscal Cliff

The highly publicized fiscal cliff in the US refers to the political gridlock between Republicans and Democrats to cut its record $16 trillion government debt. The year end expiration of wide-ranging tax cuts and the imposition of draconian spending cuts have rattled investors and business leaders around the world.

Household Debt (In Canada)

CBC reported in October 2012 that Canadian household debt (household debt includes mortgage debt) hit a new high at a debt-to-income ratio of 163%. That number is close to households in the United States and the United Kingdom before home values crashed. At the peak of the U.S. housing bubble in 2007, household debt to income reached 170 per cent.

Still, many financial analysts suggest that Canada’s housing market is on a more solid footing than was the United States as Canadians hold more equity in their homes and many of their mortgages are backed by the federal government through the Canada Mortgage and Housing Corp.

Consumer Debt

Consumer debt, (personal loans and credit card debt that excludes mortgages), almost hit a $500 Billion ceiling in 2012 in Canada. (Seasonally adjusted to 498,820 Billion as Reported by the Bank of Canada December 21st 2012)

This is one of the most troubling developments in 2012 for individuals and families in Canada for me. Consumers are unable to meet all of their expenses without borrowing to subsidize their incomes. We must get more serious about managing our consumer debt in 2013.

So, here is my Top 10 List for 2012:

  1. The European Debt Crisis
  2. The US Fiscal Cliff
  3. Household Debt (in Canada)
  4. Mortgage Rules Change (in Canada – economy slows down)
  5. Consumer Debt (in Canada)
  6. Amanda Todd Tragedy
  7. Newtown Connecticut Elementary School Massacre
  8. Penn State Scandal
  9. Hurricane Sandy
  10. Personal Budgeting

I end this year, 2012, with personal budgeting not because it was a highlight of 2012 in Canada or around the world, but because it is the single most important thing individuals and families can do for themselves in 2013. We really do need to stop borrowing to meet our family expenses.

Happy New Year everyone.

You see, I’ve been struggling with the cost of food and gas. In the last 4 months my budget has been strained because I’m on a limited income and had no opportunity to plan for the increased price of gas, beef, chicken and pork. I buy less and less vegetables, too…only on a daily basis.

The internet and cable costs $158 per month. Hydro is $100 per month. Strata fees are $176 per month. Gas is $50 per month. My mortgage payment is $1,100 per month. Health insurance premium is an additional $128 per month.

And get this — my cell phone is $130 per month.

I know that anyone with the smallest knowledge about budgeting would laugh at the cell phone and cable costs. But you see the high speed internet connection accounts for $95 and the TV package is just slightly above the bare minimum… TV is my main source of entertainment.

Now, the cell phone enrages me, too. The very basic no frills charge is $50 per month. Then, the connect charge to the internet is $35 …the voice mail features takes it up to $100. 

To avoid incredibly excessive charges for texting – I had to add yet another charge. As my family lives in Ontario, I got the unrestricted calls for Canada… not bad at $10 per month, but the total just creeps up up and up.

I think that internet and cell phone expenses now fit into a similar corporate category as gas companies. We all need them, and they sure know how to profit from our dependency.

I also heard on the television today that the household debt in Canada is continuing to rise. Despite the various warnings from the government. But when you look at the basic costs for housing, utilities, food, gas, medical, the internet, and this is a very short list that does not cover car, house, life insurance, entertainment, vehicle maintenance, clothing, retirement savings, and if you should have children, the cost of raising a child, then it’s no wonder the household debts are rising. Oh, by the way, I haven’t mentioned the associated costs of Christmas.

I have two questions for you Margaret. Why can’t the government and other experts realize why the household debt keeps going up? Isn’t it obvious?

Secondly, what do your recommend I do? I’ve had to dip into one of my credit cards already… what do you suggest I say to my family and grand children for Christmas? Do I say, bah humbug. I have no money, so no presents?

Yours sincerely,

Mr. X

Thanks for your correspondence, Mr. X. You present an excellent case for middle and lower income families who constantly struggle with exactly the same expenses as you do. You are quite right. The cost of living has been rising at a much higher rate than family incomes. And, this really explains why the consumer debt levels keep going up. They have been rising each and every year since 1974. We have broken through a made in Canada debt ceiling of $500 billion as reported by the Bank of Canada recently.

What do you do for Christmas? Although it’s a bit late, notify your family that you can only afford presents for the children. Ask them to refrain from buying you anything, or suggest they only get you one gift sponsored by all of your family.

The gifts really are what the children look for at Christmas. Us adults should enjoy spending time together and sharing our memories and wisdom – and show some leadership by staying out of debt – at least for Christmas, or, getting a plan together in the new year to reduce the debt.

Merry Christmas,

Margaret