Bill’s Blog | June 15, 2023
Not a day goes by that I do not read about the severe problem debt has become for many individuals, countries and corporations. Of course, this is nothing new, and history is replete with endless stories of bankruptcies from excessive Debt. Empires collapse under the weight of interest payments after they try to seize every ounce of tax from their citizens until that fails. We just witnessed several US banks go bankrupt, and the losses were more significant than the 25 banks that failed in 2008. Expect more to come.
Taking on excess Debt has real consequences. As wise King Solomon wrote nearly 3000 years ago, “Nothing is new under the sun.” Humanity as a whole and individuals have this propensity to not learn from history or others. The vast majority have to experience the extreme pain of loss before learning many of life’s lessons. To be sure, I, too, had to learn some painful lessons regarding leverage and Debt. O, that we could learn from the wisdom and the mistakes of others. But, for most of us, pain will be our best teacher.
So let us look realistically at our current situation as a Nation and the state of the average Canadian.
- Canada went from the best in the G7 (Debt to GDP) to the worst under our current federal politicians for racking up Debt. It is sobering, and we now have over 1.2 Trillion in National Debt. The massive interest payments are robbing the government’s ability to deal with the medical crisis, failing education systems, real-estate crisis, and severe underfunding of the military, to name a few. Unsurprisingly, the Federal government’s new budget is another massive deficit of 20 Billion! From an ethical standpoint, this is immoral and utterly irresponsible unless we have a severe crisis (and the Debt is a short-term solution). Politicians (from any party) who cannot balance a budget should be fired immediately and have their pensions suspended permanently. Our current and growing debt levels will impact generations and guarantee higher taxes for all of us. What troubles me the most is that there are NO consequences for these irresponsible individuals.
- BC, where I live, politicians are running a 4.2 billion deficit this year while collecting windfall taxes from their citizens. We need political leadership that understands basic math and stops creating surging inflation on everything!
- As a note, the Debt ceiling fiasco from our neighbours south of the border concluded as I predicted months ago—this time with a no-bars open limit and 31.5 Trillion to the moon. The people in the know understand a recession is coming soon, and they will need an enormous amount of new Debt as deflation of assets will most likely follow. Crazy times and this global government Debt phenomenon will NOT end well.
Unfortunately, according to the current data, almost one-half of Canadians are not fairing much better.
- “Forty-six percent of Canadian households report approaching “insolvency,” defined as no more than $200 away from being unable to meet their routine basic financial obligations. Quarterly Consumer Debt Index compiled by MNP, a Canadian bankruptcy and insolvency counselling firm.” 2022
- Canadians not paying their non-mortgage Debt is up over 1 M people, an increase of 19% from last year.
- Canadian households now average $1.85 of Debt for every dollar of disposable income and reach record levels.
Here are some of the signs you are in financial trouble.
- Conflict in key relationships
- Sleeping and health problems due to financial worries and stress
- Your home equity becomes an ATM for the newest thing
- Adding new credit to pay credit
- Constant calls/threats from creditors
So, what is one to do? Here are some ideas you may want to consider and action steps you can take.
- First, be honest with yourself or as a couple. Nothing will change unless you decide to make significant changes.
- Who manages the finances in your home? Ensure the right person is making the decisions. Develop a strategy so you cannot fail.
- It is essential to be on the same page and develop a plan you agree to (for couples).
- Developing a Savings strategy helps breaks the debt cycle.
- Financial Freedom starts with a change in mindset. If you believe Debt is your friend, you are usually in trouble! Treat like enemy # 1!
- Get professional help if you need it: Debt Counselling. There are three ways to deal with Debt, so ensure you fully understand your options and make the best decision.
- What is your credit score? Understanding what affects your credit score and how to improve it is critical. Your credit score tells you who is winning the game!
- Develop a realistic debt elimination plan. It may take years to be Debt free, but that is ok. Develop a plan and work the plan until you have completed your goals. Then celebrate victories along the way with the cash you saved and do something fun!
I hope this has been helpful, and please pass it on if you feel it could benefit a friend or family member.
All the best in 2023,
Bill Westmacott, Financial Educator and Solutions Provider