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September 5, 2017

The answer depends on how you manipulate statistics. So let’s mess around with some stats.

In Canada approximately 46% of the population, according to Statistics Canada, are earning incomes that exceed the LICO (Low Income Cut Off) – the politically correct way of saying “poverty line”.  While only 2.5% earn more than $150,000 per year.

That means that the top 2.5% are unlikely to be carrying heavy consumer debt loads, or are terrible money mangers if they are, while the bottom 54% have far less access to credit than the balance of the population.

Clearly, wherever the tipping point is, there is not an even distribution of debt across the Canadian population.  So while recent estimates suggest that Canadians are, on average, carrying 1.7 times annual income in debt the data is skewed away from the middle income earners who have the most access to debt and who are carrying the highest debt loads.

The stereotypical low income earner typically is less sophisticated and has less resources to deal with high pressure collection tactics.  The result is that we may see a higher ratio of lower income earners filing a bankruptcy or proposal to deal with their problems while the middle income earners continue to pile on debt.

Canadian home owners actually own far less equity in their properties that they did fifty years ago as a result of constant leveraging, consolidations.  The use of credit has increased year over year for decades.  Canadian consumers biggest increase in credit card spending has been on food products from fast food to groceries.

The average Canadian is spending 15% of their, after tax, income servicing debt.   So with an average gross annual income of about $27,000 that means that from a gross monthly salary of $2,250 after paying taxes and debt servicing fees the average Canadian is left with about $1,584 a month to live on.  Once again of course that statistic is skewed.  About two million Canadians live on a gross annual income of less than $5,000 and six million live on less than $15,000 less than two million receive incomes of $100,000 per year or more.

Interesting stuff, eh?  So let’s assume, based on the above stats, that only 50% of the population is carrying all of the reported consumer debt (we know that isn’t the case but it is closer to reality than an even distribution) then those people would owe a whopping 3.4 annual gross income in consumer debt – and growing.

Is even fair to ask people to “imagine” living debt free?  Is it more realistic to discuss ways of living “with” debt, as if it is chronic illness, rater than to ask people to break the habit?