519-646-2222Debt Trap – exaggerates inflation
Many Canadians are in a debt trap, and we didn’t get there because we are unsophisticated or don’t understand debt. The debt trap has Canadians, on average, owing up to 1.87 times annual income in debt. Of course, a very small number have no debt at all, but most Canadians are carrying some form of debt.
According to Statistics Canada the median income in Canada is around $40,000 – meaning that 50% of Canadians earn less than $40,000 before taxes, and 50% earn more. On average, using those numbers, every single Canadian owes $74,800 in debt.
The reason for such a high level of debt rests mostly on the government. The problem from our perspective is not financial literacy but greedy overzealous lending protocols and sales techniques. There have been several media exposes of bank bonus practices that encourage employees to fudge credit applications allowing bank clients to have access to more credit than they should have.
A case in point is an 80 year old bankrupt who has banked at the same bank for more than thirty years, during that time the bank had access to detailed financial information including the fact that the 80 year old’s only source of income is government pensions. Yet the bank allowed the elderly pensioner to access tens of thousands of dollars worth of debt.
The minimum monthly payments on a $30,000 credit card debt amount to about $600, the pensioner described above has about $1,300 per month of pension income. After paying the minimum monthly payment on the credit card the pensioner must pay for rent, utilities, food, clothing, and other basic necessities out of the remaining $700, an impossible task. So, being resourceful, as many Canadians are, the elderly person uses other forms of credit to cover the costs of the necessaries of life.
As the price of just about everything is increasing, inflation is being magnified by the cost of servicing (not paying or resolving) debt. Economists use all kinds of magic modelling to come up with inflationary numbers, most of which are wildly inaccurate and politically partisan. We know that the cost of housing has tripled, or more in some markets, during the past five years. We also know that gasoline has about doubled in the past two years. To suggest that inflation remains in single digits is more than simply fallacious, it is blatant gaslighting.
The impact of making endless minimum monthly payments along with paying roughly half of our incomes in taxation is impacting our economic stability. Eliminating some taxes, such as the HST, would go a long way to freeing up income and regulating lenders to prevent them from using exploitive sales techniques and repayment schemes would go a long way to helping people through the recession.
Clearly the last paragraph speaks to matters that are completely out of our control, we have no power to eliminate taxes and no ability to regulate banks. But there is one thing we can do to bring our finances under control and that is to break the debt trap open by filing a Consumer Proposal. A Consumer Proposal can reduce the $600 per month credit card payment to less than $100 per month, freeing up money for groceries instead of paying interest only and diving deeper into debt to maintain some semblance of ‘face’.