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BDO Sault Ste. Marie

747 Queen Street East
P.O. Box 1109
Sault Ste. Marie, Ontario
P6A 5N7
(705) 945-0990

Election 2015: Why Weren’t Financial Literacy and Record Debt Levels Significant Topics of Discussion?

Party leaders and major news media identified the economy as a major issue in the recent federal election. Yet, one significant aspect of Canada’s economy – the high level of consumer debt – was missing as a significant topic of discussion during the election campaign.  Consumer debt is currently at a record level. In September, Statistics Canada said the ratio of household credit market debt to disposable income climbed in the second quarter of 2015 to 164.6 per cent, up from 163.0 per cent in the first three months of the year. In simple terms, that means the average Canadian owes nearly $1.65 in debt (mortgage and non-mortgage) for every dollar of disposable income. The Bank of Canada has identified climbing household debt as a point of vulnerability for the economy. If interest rates increase, the ability to service consumer debt will become more difficult, resulting in increased bankruptcy and consumer proposal filings.  So why wasn’t this issue discussed more frequently during the election?  As a bankruptcy advisor in Sault Ste. Marie, I meet individuals daily that are struggling with their personal debt level.  The struggle to make ends meet is getting harder and harder. An increasing number of individuals and families are using debt to balance their budgets.

The risk of using debt as a means of balancing the household budget is risky. A change in circumstances can result in a reduction in income available to make debt payments. Some economists believe that high household debt isn’t a worry because the cost of borrowing is at record low levels.  However as a Trustee, I meet with individuals that face changes in their lives that are often beyond their control including job loss, layoff, strike, illness and separation.  These changes result in a drop in income and often cause a default to occur in debt repayment.  Strategies exist to help reduce the risks associated with changing circumstances.

The Financial Consumer Agency of Canada (FCAC), an agency of the federal government, recently introduced the National Strategy for Financial Literacy #CountMeInCA. This strategy sets out goals and priorities to help Canadians better manage their finances and make appropriate decisions as their needs and circumstances change. The party leaders should have put the spotlight on this important work during the election. Emphasizing increased consumer spending as a way of keeping the economy going is risky. Whether through proposed tax cuts, home renovation tax credits or allowing more RRSP funds to be used to finance home purchases, initiatives being discussed involved putting more money in the hands of consumers to allow them to spend more or service more debt.

What’s the alternative? Financial flexibility.  Financial flexibility will allow you to avoid financial difficulty when an uncontrollable change happens.  Consider the following strategies:

  • Pay down debt. Use the current low interest rates to increase payment toward the principal owing versus just making minimum payments. This will reduce debt levels and eventually allow you to redirect dollars to an emergency fund to address uncontrollable situations.
  • Lock in mortgage rates. Low interest rates will not be around forever, so attempt to lock them in so that your mortgage payments don’t increase when interest rates increase. This strategy will also allow for more money to be directed to reducing the principal amount on your mortgage.
  • Track your spending and develop a spending plan. Keeping track of spending will provide you with the information needed to predict future spending patterns. Having concrete details of where your money is going will help you make decisions about spending habits and implement changes to focus on achieving your goals.
  • Explore online financial literacy resources. For example: This website is having a “31 Days of Living Well & Spending Zero Challenge”. The FCAC site has a wealth of information – including financial tools and calculators – to help you increase your financial knowledge.
  • Attend a financial literacy seminar. November is Financial Literacy month. Seminars will be offered in Sault Ste. Marie that will provide tips on dealing with your debt, developing financial budgets and plans as well as increasing your financial knowledge.

Why not attempt to implement some of these suggestions?  As a Bankruptcy Trustee, I see residents of Sault Ste. Marie and Algoma that have not implemented a strategy in time to avoid declaring bankruptcy or filing a consumer proposal. It’s important to have the financial flexibility to address uncontrollable changes on your terms. Even with a new government, uncertainties will continue to exist. Strategies should be implemented to minimize the impact on your family.

Most of us could benefit by learning at least one new financial literacy skill. What money or debt management strategy do you want to know more about? Join the conversation. #BDOdebtrelief #CountMeInCA

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