Many Canadians are living on credit rather than staying within their means
thewalrus.ca
thewalrus.ca
Good debt is one where you use other people's money to build your own wealth in appreciating assets.
Bad debt is where you borrow on credit to buy yourself a momentary satisfaction, like a trinket.
Most people think they're richer than they actually are. Which is why it's so common for people to "spoil" themselves. Learning to live cheaply is a skill and takes a bit of pride swallowing as the people around you live more lavishly on less income.
Unfortunately there a lot of people who are quite a bit overconfident about their financial state due to swollen housing prices.
Worse, nothing is guaranteed. I knew people who died young. All my savings will be wasted if it turns out I'm one of those who don't make it to retirement age. The best thing to do could be charge my credit cards to the max and enjoy life as best I can now - letting my estate be bankrupt. We have no way of knowing until after I die what I should have done.
This argument relies on the assumption that 'getting nice things' yields 'enjoy[ing] life as best I can now'
This isn't necessarily true. Some people, myself included, feel much more satisfied living below our means. Above a base level, I don't think 'stuff' really makes us happier, and the security of having savings gives me peace of mind that is much more valuable and happiness-inducing than, say, an expensive car.
I do, however, look at friends who make significantly more than me and see that their lifestyle has grown proportionately with their income. Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality, which to me seems like a missed opportunity.
Depends on where the wealth comes from, and if it's related to the spending of money (networking in expensive bars, for example).
There's another argument: what is retirement? Time spend on 100% leisure? But in this case we live frugally (100% work) in order to get that retirement. the reason we take so long to retire if we don't live frugally, is that we split time among work and leisure - i.e. we are partly doing what we'd do if we retired anyway.
I actually enjoy working. I don't see myself not working when I retire. It will probably be more casual work at my own pace, but I'd still like to be useful.
Many of the "retire early" people I've interacted with on /r/personalfinance are doing it because they hate their jobs and want to spend their life travelling or otherwise not working. To do that, they spend as little as possible (and save as much as possible).
Many people are okay with that. I'm not. I tried simulating that again for the first few years out of college to pay down some student loan debt. I stopped the minute I was able to refinance all of my existing debt into one with lower interest.
I think I dislike living frugally so much because I grew up poor and being poor sucked.
Then again if you already find your work fulfilling and expect to continue to do so, I understand that there wouldn't be the same urgency to retire (with the caveat that everyone should save something for retirement as well as having an emergency fund).
I'd say a new car loan is good debt, even though it's a depreciating asset. For the last 15 years or so, the interest rates are so close to inflation that it doesn't even make sense to pay cash for a new car.
At times when I was in the market for a used car, I opted to buy new because the interest rate was lower on the new car and it was irresponsible for me to pay cash for the used car.
I would beg you not to tell this nonsense to people but I suspect you will think you know better.
What appreciating assets should people get in debt to buy? Surely you aren't trying to label houses as appreciating assets.
You should go into debt to buy any assets that you know will appreciate at a rate greater than the interest you pay on debt incurred to finance them.
>Surely you aren't trying to label houses as appreciating assets.
Real rate of return on real estate is slightly positive in historical data.
However, a house can provide a lot of enjoyment so I am not advocating you don't buy one, just be realistic about what you are buying.
Also, water is wet.
I "knew" when I bought corporate bonds paying 15% in 2008 that they would appreciate.
>house prices in a community are not as secure as you might believe
You're grabbing anecdata as evidence. I'm looking at the data. Yes, Detroit is bad. How about we look at Mountainview, too?
>Plus you're ignoring the carrying cost of a property and the transfer costs.
Real returns
No, you're ignoring the case where they might have defaulted.
The housing market oftentimes works in cycles and changes with time. In my life I've watched the neighborhood I grew up in go from highly desirable to highly undesirable and now it's back to being desirable again. 30 year mortgage is enough time to see wild swings in technology, the economy, industry, and plenty else.
These all effect housing prices. Dramatically sometimes.
Mountain View is currently dependent on the tech industry and the flow of VC capital to maintain housing prices. Another .com crash and Mountain View house prices will crash accordingly. "Silicon Valley" may even move to the South or something in 20 years.
Right now the neighborhood I currently live in is in a boom due to a large employer here heavily ramping up production and the associated influx of people moving here from other parts of the country for work. I don't really expect the sort of growth we are experiencing now to last in the long term but who knows what will happen.
There's always the unknown.
A house is a house, enjoy it, but don't count on making money on it.
How on earth do you know what I'm ignoring? I most certainly accounted for the fact that the companies could default.
>The housing market oftentimes works in cycles and changes with time. In my life I've watched the neighborhood I grew up in go from highly desirable to highly undesirable and now it's back to being desirable again. 30 year mortgage is enough time to see wild swings in technology, the economy, industry, and plenty else.
And yet, the long term real rates of return are positive (but small). You have your strategy, I have mine.
How does this rate of return compare to prevailing interest rates from the same period?
Sometimes higher, sometimes lower, depending on a million variables. Does that surprise you?
I had an uncle who suffered brain damage from an aneurism that left him unable to handle money- memory issues, disorganization, etc. He was never going to be able to pay back credit cards and my mother (his PoA and lawyer) informed the credit card companies of this. They sent the cards anyways. They wanted him to go into debt, hoping that his family would bail him out.
There's more profit in taking advantage of people than there is in being a decent person. Unregulated free markets cannot account for that reality. We in Canada have some regulations, but clearly not strong enough ones to prevent this kind of predatory lending.
Yes, predatory lending exists and it may be immoral, but it still requires the other side to agree to it. And keep in mind that the other side frequently has no intention/ability of paying. That is at minimum acting in bad faith and is usually against the law, even if there is no misrepresentation of income, assets, etc. In many jurisdictions, merely taking out an unsecured loan without the intention of actually paying it back (regardless of what the lender says or does) is technically illegal.
I wasn't trying to say they were rational, merely that they are still required to agree to the terms of the predatory lending and they should still be considered responsible for their choices. Also, I wanted to point out that they frequently are not the innocent victims that they are made out to be. Many times they are just as bad as the lenders simply because they don't intend to pay. The lenders are just far better at inducing payment than crooked borrowers are at getting away without paying the money back.
Look at student loans. Nearly half of all students think that their loans will be forgiven eventually. Maybe they are right, maybe they aren't. No one knows. But the point is that they are taking on the loans because they don't expect to be held liable for and required to pay back in full.
I see. My complaint is that a credit card company knowingly took advantage of a disabled man, and your answer is that he was the villain in the situation.
The man sometimes couldn't tell what was real vs what he had imagined happened. He couldn't go too far from home alone because he would forget how to get back. He was a wonderful human being, a hilarious story teller, and happened to be disabled because of a health issue.
But sure, let's blame him.
The moment a court hears of it ALL your claims against that person will be forfeit and the blame will lie squarely with you. I'd be surprised if Canada/US doesn't have similar provisions.
Not easy even if you're in full control of your mental faculties.
Edit: I didn't realize it blocked people in other countries from even seeing it. Here's a snapshot: https://web.archive.org/web/20170603221522/https://www.optou...
> The OptOutPrescreen.com website is only accessible through ISP's (Internet Service Providers) located within the United States and its territories.
Rarely see that on non-media sites.
Can someone explain what it does?
If you register for it then you won't get unsolicited credit offers from companies you don't have an affiliation with. So American Express can only go pulling random people they aren't affiliated with a score of over 700 or whatever and send card offers only to people who haven't opted out.
However, it doesn't prevent companies from marketing credit offers to people they do have an affiliation with. So if you have an AMEX card then American Express can market other American Express cards to you even if you signed up for prescreen opt out, and your bank can market their cards to you, and your airline rewards program can market their cards to you, etc.
Consider that they can probably do so simply by using a proxy located in the US, or while visiting the US.
"Legitimate" users don't notice, casually-interested people get annoyed, and fraudsters work around it.
It doesn't solve anything and I wish people would stop doing this.
Basically, credit card companies (and insurance companies) buy consumer data from the credit bureaus to send unsolicited offers. That site is for you to register with the bureaus that you don't want your credit report sold in that way. That's how come companies can still send you unsolicited credit offers when they already have your information from elsewhere, such as from your bank account or frequent flyer account.
I don't know which, if any bureaus operate in Canada or how that are allowed or not allowed to sell your data. That particular site gives you specifics information about American law (FCRA), and how things work in America with credit bureaus information sharing - it's completely irrelevant for Canada.
Just starting the article but... It seems like this is a pretty big issue. I couldn't imagine taking a 12K vacation. Especially if it was going to bring the total savings for my family down to 9K. That's just poor financial planning.
This quote really stuck out to me. It wasn't "just poor financial planning" it was absolutely no financial planning.
Was there predatory behavior on the part of the loans? Absolutely. But to me the larger take away here is the importance of budgeting, saving, and being responsible with your financial planning. They were making over $87k/year after-tax, and just a couple months after he lost his job they had liquidated their entire savings.
I have never gone on a trip to any of those places or anywhere else because I save my money (I'd rather Rome or Tokyo). Yet people with absolutely no money or on unemployment, a dozen kids etc. It seems everyone goes no matter the cost and every single year.
I know people say "travel now while you can" but I don't want to be 65, poor, an alcoholic, and with with blond hair, bald and blue eyes I'd probably end up with melanoma.
This is the same crowd that goes to Timmies two or three times a day yet poo poos Starbucks.
The mental gymnastics required to tell a 1930s sharecropper, an 1890s coal miner, or a 1770s battlefield medic that writing javascript in an air-conditioned cubicle for 45 hours a week is "unbearable".
Vacations are absolutely a luxury. A luxury that is increasingly "required" by modernity with Facebook and Instagram posts convincing people that their lives are less than that of others.
I don't know, I think they'd find a lot of suffering in common. The sharecropper can sympathize with the tragedy of property ownership. The coal miner has nightmares about seeing his canary drop. And the battlefield medic definitely knows everything about missing semi-colons.
Different times, different stresses. Vacations are a necessity, whether it's going out to the world or just retreating inside your house for a staycation on the weekends.
Labor has it easy when you have marketable skills. If you don't you will end up with a real problem.
US Average wealth is $300,000, Median Wealth is $44,000 (source http://money.cnn.com/2014/06/11/news/economy/middle-class-we...)
The US is skewed very heavily by a small number of very rich people at the top
For comparison UK median is £104,000 (Source https://www.ifs.org.uk/publications/8239)
After reading the article I can identify a few things that would've raised a huge red alarm in my head if it was me: - Don't spend $12k in holidays right after you're fired and have a couple kids. - C-Sections are quite normal these days... It'd great that you want to be with your wife and the new babies... If you can afford it! Most people can't. - Using loans that have an interest of 590% APR... Sorry, you have to be quite ignorant to sign that. Even the worst credit cards have an interest that's a fraction of that. That's definitely not cheap credit.
I know many Canadians... And people with that little financial knowledge is definitely not that common. And yes, most people take more debt than what they should, but the case portrayed in the article should give way to a very different headline "Couple chains badly financial decisions".
Understanding budgeting, interest on loans & credit card debt, how a mortgage works, saving for retirement, etc...
So that once you get into the real world, you aren't learning this stuff through trial and error.
I remember doing budgets and figuring out how much it would cost to leave your parent's place, rent an apartment, buying fridge, furniture, etc. to help you prepare for being an adult.
They're talking about adding it back now.
They even taught you basic cooking and sewing. Our final cooking exam consisted of every team of 2 students being given 20$ and an hour and a half to go to the grocery store across the street, buy ingredients for a pizza and then cook it, without assistance from the teacher. You were graded on budget, teamwork, time taken and the quality of the cooking.
I still think that is a genius idea for an exam.
If you can read French, I found these documents that are interesting while researching the subject:
http://collections.banq.qc.ca/ark:/52327/bs1561252
http://collections.banq.qc.ca/ark:/52327/bs41338
The second one says it's approved by the Catholic and protestant counsel for superior education...? http://cse.gouv.qc.ca/FR/Historique/index.html
Seems to make way more sense to have it in high school
I was in high school in Ottawa in the early 90s and there was nothing like that.
Agreed, but sometimes that's the only hope some have. At one point in time, I did and I came from a very normal credit-worthy background. Shit happens, ktzar.
Maybe they're already maxxed-out? Or can't get a credit limit high enough to borrow what they need. Or need to pay something in cash, and don't have a higher limit available from a cash-out card. Or are "un-bankable"
That 590% is scoffed at, yet paid, because there's a majority of people (2M in Canada, according to the article) who have no other choice.
Most people would opt for the better option, if they had one.
Nobody made them spend two months income and 60% of their savings on a vacation. That's patently idiotic.
I think I covered that. The reason they do is because Canadians are very much conditioned (and Americans too) to describe everything they buy in terms of monthly payments. That works, as long as the paychecks keep rolling in. But it does not take much to upset that.
As for the infrastructure spending and other bits in that comment: if there were more people carrying the load then everybody would end up a little wealthier. As it is the only place where real money is being made in Canada is in banking, which is almost predatory as to how it treats the population. The interest rates are off the scale compared to the rest of the world and the various low key trade-wars with the US do not help either.
As someone born and raised in Northern Ontario, I have no idea what you're talking about.
You want to know what modern poverty looks like, go to San Francisco.
Their is far more money here than appears on the surface. Years of 10,000+ miners making 100K+ per year + nickel bonus saw to a rather well off retirement community and thriving big ticket item market. Yup, lots of them borrowed to get there quickly. But it was also paid off quickly.
Now, that being said, Sudbury is a very different place 15 years later. The vast majority of the mining jobs are gone, the infrastructure is falling apart. But I wouldn't even come close to calling it poor. Is the future bright here. Nope. But I wouldn't call lots of the major centers to the south prosperous either.
Myself. I never had a CC until I was in my 40's. Even then, they are rarely used, and, paid off immediately. Despite what I think is an artificially inflated local housing market, I manage to save a significant chunk of my income every month. The root cause of the debt problem, I think, is the lack of education. Schools haven't taught 'money' in ages. Managing a household is no different than managing a small business. People have been purposely NOT taught how to manage their money by our education system, it borders on the negligent.
Anecdotal evidence of money issues is my buddy who does repo's and is baliff. Just before the economy goes into the tank as a whole, he's called it each time because repo's and defaults shoot way up just before.
Unfortunately, he's very busy at the moment.
Been to Wawa, Sault Ste. Marie, North Bay or Timmins recently? What about the smaller towns like Desbarats, what about the rural areas?
It's - to me - incredible that in a first world country people would be living like that, I've seen poverty in other countries as well, but not in places where the winters are that cold. In Panama or Colombia you can get away with living in a shack, in Northern Ontario it is not an option.
If you feel that Northern Ontario is doing well then you are not in agreement with the people that live there, younger people - if they have any marketable skills - move to the large cities, mostly Toronto but also in the United States as soon as they are able to.
Sure, San Francisco has poverty too, but at least the climate won't outright kill you (in case you were wondering why there aren't so many street people in Northern Ontario: the ones that try usually do not last a single season).
Yes, in fact I have. I lived in North Bay for many years. I have family there still. I played NOJHL hockey. I still spend 4 weeks a year on vacation (best fishing in the world!) in the North.
>If you feel that Northern Ontario is doing well then you are not in agreement with the people that live there, younger people
Not "doing well" isn't the same as "first world poverty". Sure, there are isolated First Nations reservations, like Attawapiskat, that have serious issues. It is nowhere near the norm, or in fact much worse than places like, say, the Appalachian coal regions.
But I'll concede the climate argument. Thankfully, our country has a decent safety net.
>younger people - if they have any marketable skills - move to the large cities, mostly Toronto but also in the United States as soon as they are able to.
Do they? Because I was and know many of those young people. Yes, there's movement to the cities like everywhere else on the planet; it's where the white collar work is. But many people want to stay in the North.
For what it's worth, I'm in the tech industry and moved from Northern Ontario to the city. Now I'm in PEI, another beautiful rural area that I hear people are fleeing....
You don't feel that skews your perspective just a little bit?
It surprises me, because I've never been up there. I do accept that we have issues, and that people have been getting hit by harsher bills, like Hydro recently.
The article doesn't want to seem to load for me, but what is the source of cost issues in that part of the country? Cost of living vs what jobs pay out there? Or is it more deep than that?
I primarily have been wanting to see an increase on taxes on the higher earning bracket. Also we should probably have more brackets on the high end 250k+ all paying the same tax rate doesn't make a whole lot of sense to me. Anyways, my hope is that we can use that to reduce costs of services this way. Not sure if it would solve the issues you speak of not.
I had to wait a bit but it eventually loads. Not sure what is wrong with the website.
> what is the source of cost issues in that part of the country? Cost of living vs what jobs pay out there? Or is it more deep than that?
Article concludes frivolous spending coupled with negative life events: Loss of job, "ignore their tax bill while shelling out for rep hockey and baseball", relationship gone wrong.
"Thanks to all the cheap credit, many of us can bridge our financial shortfalls for years before realizing we are on the brink of ruin."
There's even probably a bit of an inversion by now where the poorest areas are apartments in small towns rather than isolated rural homes.
PS. If there is a problem with middle class in Canada this story is not a good example of it.
I'd also be cautious about trying to live away from family and friends who you can rely on for spot support with childcare, emotional support, etc. I know it's not feasible for all, but that cost would add up.
You were never to empathize with it; it's just saying people spend beyond their means.
They have jobs, so they don't go over the edge. But it's basically one step removed from the more extreme situation highlighted in the article.
I'm conflicted on what to think about this. He comes across as arrogant, and made a very poor choice of item to illustrate his point, given how many avocado toasts you'd need to forgo to save a deposit for a house. It's also true that lack of affordable housing is mostly a political failure.
But I look at young people in the UK and kind of see what he means. Home ownership (and any sort of real, sustained wealth) seems like such a distant prospect that people would rather just indulge themselves now.
[0] https://www.theguardian.com/lifeandstyle/2017/may/15/austral...
Wait, so the middle class doesn't own any of these rising priced assets, thus benefitting from the price increase? I don't think that's true.
I would have guessed it was much lower in Canada.
[1]https://studentloanhero.com/student-loan-debt-statistics/ [2]http://www.ibtimes.com/student-debt-2016-canada-graduates-wo...
+ 66 percent of graduates from public colleges had loans (average debt of $25,550) + 75 percent of graduates from private nonprofit colleges had loans (average debt of $32,300) + 88 percent of graduates from for-profit colleges had loans (average debt of $39,950) + MBA = $42,000 (11% of graduate degrees) + Master of Education = $50,879 (16%) + Master of Science = $50,400 (18%) + Master of Arts = $58,539 (8%) + Law = $140,616 (4%) + Medicine and health sciences = $161,772 (5%)
This is a highly skewed distribution (would be in Canada too, but all values would be lower). Graduate school in the USA is significantly more expensive than in Canada. The average of the Canadian distribution across all majors + graduate programs is going to make the difference between the two nations seem much smaller than it really is. The Canadian report has no such breakdown unfortunately (though see the average debt levels on page 40 of this http://www.cusc-ccreu.ca/CUSC_2015_Graduating_Master%20Repor...).
Usury
You cannot not care about part of the population, even if you think it's their fault they're not doing better. Because the day they go to the streets to tear apart society as we know it, is when it's too late to care about them. Sad but true, history has shown this is how it works.
Maybe it's extreme, but it's something to keep in mind. I had this very conversation with my grandpa the other day. He told me "well, you cannot care only about yourself, because you have to make sure other people/classes/whatever aren't so unhappy as to start a revolution."
I have very little sympathy for that idiocy. And even less for the decline of rugged individualism in favor of asking the government for handouts.
The lower class never had any advantages to begin with so my apathy does not extend there.
The money supply really needs to be flexible to account for the amount of goods and services produced by the economy. Too much and you have inflation, too little and you get stagnation.
So I don't believe that a currency based on a fixed supply of money would ever actually be workable long term (and unsurprisingly gold and other commodity backed currencies have never lasted).
I had a coworker who got a condon and was paying 45% of his income for it, it made no sense. So I keep renting and wasting my money as people say, but at least I wouldn't go bankrupt if something bad happens.
Maybe this text-only version is better: http://webcache.googleusercontent.com/search?q=cache:7E6mLP9...
mirror, archive (for ctrl-f)
Do a search and all you see are articles downplaying it. Really shameful, looks like Canadian publications are just as shady as ours.
Does this hurt the assumption that subsidized health care and college was supposed "fix" this?
"Canada has a problem with credit, haha, looks like their... subsidized health-care didn't help them out of that one as they thought it would!"
It would seem like even with healthcare for all, bankruptcy is still a problem for people.