519-646-2222Caution: Why Now is Not the Time to Take on More Debt
In today’s economic climate, many people find themselves facing difficult financial decisions, particularly when it comes to debt. As we navigate through uncertain times, it’s critical to take a step back and evaluate whether adding more debt is truly sustainable, especially when the statistics paint a troubling picture.
Income Inequality and Debt Exposure
Canada’s financial landscape shows that the vast majority of citizens are not earning enough to comfortably manage additional debt. Over 65% of Canadians earn less than $41,000 per year, which makes managing existing debt challenging, let alone taking on more. On the other end of the spectrum, only a mere 7% of Canadians earn over $100,000 annually, highlighting the stark income inequality that exists.
To break it down further, in 2023, the average income for 33 million tax filers in the country was just $57,000. This number demonstrates that most Canadians are far from the financial stability needed to comfortably take on more debt, especially given the rising costs of living and skyrocketing housing prices.
Employment Instability
Compounding the issue of low income is the reality that only half of the workforce holds full-time jobs. Full-time employment, which is defined as working more than 30 hours a week, including part-time and gig work, is becoming increasingly rare. Without a stable income stream, taking on more debt only increases the financial burden, pushing individuals further into precarious financial situations.
Furthermore, over 25% of the workforce is employed by various levels of government. While these individuals provide essential services, they do not directly contribute to the private-sector tax base, which means a substantial portion of the country’s workforce is not producing taxable revenue through private enterprise, adding additional pressure on the economy.
Rising Debt and Overstretched Households
Canadians are heavily reliant on credit to bridge the gap between stagnant wages and rising costs. It is estimated that Canadians collectively charge a staggering $800 billion on bank-issued credit cards. As personal debt levels rise, so does the financial strain on households, with many individuals paying the price through exorbitant interest rates and ballooning debt balances.
Meanwhile, the overall tax burden continues to weigh heavily on Canadians, with 50% of income being absorbed by various forms of taxation. This leaves many households with insufficient funds to cover essential expenses, let alone manage additional debt responsibly.
Real Estate Crisis: An Overpriced Market
The housing market is another area where the debt crisis is sharply felt. House prices are at least 200% overpriced, leaving many people struggling to keep up with mortgage payments. As interest rates rise and housing prices remain inflated, the risk of mortgage defaults and foreclosures increases, exacerbating the financial pressures on Canadians.
In one local real estate market, 2,400 homes were listed for sale, but only 800 sold within the same period. This points to a growing disconnect between sellers and buyers, indicating that many Canadians are either unable or unwilling to take on the high costs associated with home ownership in such an inflated market.
The Bottom Line: Why Now is Not the Time for More Debt
Given these concerning statistics, it is clear that now is not the time for most Canadians to take on more debt. With low wages, employment instability, excessive taxation, and an overheated housing market, adding more financial obligations could lead to long-term hardship. Instead, it’s crucial to focus on financial planning, budgeting, and reducing reliance on debt wherever possible.
Living within one’s means may be challenging in this current economic environment, but it is essential to maintain financial stability and avoid the long-term consequences of falling deeper into debt. The key to navigating these uncertain times is to prioritize saving, pay down existing debt, and resist the urge to take on new financial burdens that could compromise your future.