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Addicted to debt, but it’s our no. 1 financial concern

Even if the credit card bills haven’t started rolling in just yet to remind you of any overspending for the holidays, there’s a good chance “getting the finances in order” was a popular New Year’s resolution.

A poll leading into the holiday season indicated some 60 per cent of Canadians expected to overspend, with about half of us indicating we’d gone into debt buying presents during previous Christmases. About a quarter of say the financial stress of the season negatively impacts our mental health.

The corollary of that is paying down debt is our number-one financial priority heading into 2019, egged on by worries about the cost of living, rising interest rates and the low Canadian dollar.

The good news is some of us are starting to tackle our record levels of personal debt. The bad news is that debt has been fueling our economy – two-thirds of it based on consumer spending. The good news is we’re saving more. The bad news is we’re not really optimistic about the future.

And we have no idea what that will mean as the economy struggles.

Canadians have lost confidence that the national economy or their personal financial situation will improve any time soon. That’s part of why we want to pay down debt – at 26 per cent in a recent poll, it’s the top financial priority, followed by keeping up with bills and getting by (14 per cent), growing wealth (12 per cent), saving for a vacation (seven per cent), and saving for retirement (six per cent). Among the 29 per cent of Canadians who have taken on more debt in the past 12 months, top reasons cited are to cover day-to-day items (34 per cent), purchase a new vehicle (24 per cent) and pay for a home repair or renovation (20 per cent). Little changed from last year, Canadians say their top sources of debt are: credit card (45 per cent), mortgage (31 per cent), car loan (23 per cent), line of credit (22 per cent), personal loan (11 per cent) 28 per cent say they have no debt.

With both runaway housing prices and the scary increase in the number of people going into debt to pay daily expenses, the growth of debt has outstripped increases in average income.

Easy credit and low interest rates that fueled the borrowing are both receding.

As the recent Christmas frenzy reminded us, it’s our spending habits that have got the better of us: bigger homes, new cars, electronic toys and so on. Our wants are limitless, while ability to pay for them is not.

Worse still, our real incomes and net worth are in decline, meaning we’re borrowing just to maintain the status quo. So, even as household debt climbed relative to our incomes, we had less than we did last year. Although residential real-estate assets increased, this was more than offset by the decline in the value of our investment in stocks (including mutual funds) and our pensions.

Caught between falling incomes and growing household debt, we’re using borrowed money to finance day-to-day expenses rather than consumer goodies.

Clearly debt is a problem at the individual level, just as it is with governments. The key to changing the situation rests not only with cuts and austerity – we should, however, be saving for the future – but with seeing actual economic growth that moves us away from a dependence on consumerism as its fuel.

While recent polls indicate we’re concerned about debt, there’s still far more talk than action.

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