bybigcajunmanoriginally published onDecember 16, 2015
Do you realize that you drag your financial past decisions around like Jacob Marley did in a Christmas Carol ? All of those odd decisions that you made in the past build a chain that you are now hobbled with, and will continue to be hobbled with. Dickens had Marley’s chain signify the horrible decisions he made about mankind, and while that is a lovely sentiment, the financial chain that you create for yourself here and now is just as crippling (if you continue to make bad decisions).
Jacob Marley and his Chains (Sir Alec Guiness)
Getting the point across to younger folks, that pretty much all the odd decisions that they make early on in life will follow them one way or another, in pretty much all aspects of life, but especially in financial terms, is not an easy task. When you are young you have all the time in the world, and if you make a few mistakes it won’t caused you any issues later in life, or will it?
If you decide to forego putting money in your RRSP, and decide to get a nicer car when you were 25, you then have more links in your financial chain to carry. You will have to save more later in life to retire the way you wish.
If you don’t quit smoking until you are 40, you have 20 years of spending money on your habit, and shortening your life (and paying more for your life insurance as well). More links in your financial chain. You might want to look up how much term insurance costs for a smoker over the age of 50, if you think I am being alarmist.
Everydebt that you think you will pay off at a later date, or worse each month you carry credit card debt, you forge many more strong links in your financial chain.
Every lottery ticketthat you have bought over the years adds more links to your chain.
The financial chains you forge in your youth, are a heavy weight to carry into your golden years.
I have had a lot of folks comment to me about how “… I didn’t know I was in trouble financially until I was in the middle of it…”, which is (unfortunately) true for many folks. In trying to help folks understand some of the warning signs that their debt load is starting to get out of control I will give you some personal examples of when you should really start doing something (i.e. make a plan, or talk to someone) about your debt load.
The Coyote Didn’t See it Coming Either
If you have yelled at your spouse because they bought the “expensive” toilet paper. If you are that close to the edge that whether you get “ass ripping” or “soft on my bum” toilet paper matters, you are in trouble.
Suppose you start devising plans to transfer monthly credit balances from one credit card to another one with a lower rate of interest. You shouldn’t be carrying debt on your credit card (even if it has a low-interest rate), and if you are thinking of consolidation loans, you are in trouble and should go get help.
A financial plan is needed, or at least a list of known expenses, and you can’t remember all the places where you owe money, this is a big problem. More than once I have heard an associate tell me, “… I forgot that I had to pay the property tax this month..”. Really? Any bill that is bigger than $100 should be on your calendar with warnings on when to pay it.
Your need to have a new vehicle fools you into allowing your car sales rep to “blend and extend” or “fold in” your previous car lease into your new one, because it’s only $50 more a pay (and you are paying every two weeks).
If the phrase, “pay day loans aren’t that bad” is ever used by you and not in a sarcastic way, you are really up feces creek without a canoe or a paddle.
No One Chooses to Get Out of Control
I realize very few folks make the conscious decision to let their debt get out of control, but it is scary to think just how simple it is to have things get out of control when it comes to your finance. Diligence is the watch word for your money.
You have worked hard for your pay, and you deserve to do something for yourself with all that cash you earned, so here are some of the best things you can spoil yourself financially.
Go to the Mall, find a Banking machine, and deposit that money into your savings account. If you don’t have any cash on you and all of your money is in your bank already, indulge by walking by that ATM (and get a special warm feeling of accomplishment if it is a “White ATM” which might have charged you $3.00 to withdraw your money).
While you are strolling through the mall, if you see something you really want to buy in one of the stores, realize how many hours you would have to work to pay for that thing, and then bask in the warm glow of knowing how much money you would keep by not buying it, and then don’t buy it.
As you pass the Restaurant that you love to eat at, remember that wonderful sensation that isn’t the ten kilos of fat. that you would have accumulated if you continued to eat their huge portions. Self-control is a wonderful feeling and you deserve the rapture you experience when you exert it. You also won’t need that gym membership, because you didn’t put on those extra 10 kilos.
If you are at your computer, go to the BMW web site, and design your dream car, give it all the extras you have always wanted (include a heated coffee cup holder). Take in this glorious piece of Bavarian Auto Prowess, then make sure that your bus pass is up to date, and know that by not buying this gorgeous piece of auto porn, you will be able to make a down payment on a house.
Find all of your credit card statements, and see how many you can pay off this month, and think of all the money you didn’t have to spend on high interest charges, because you are that person. You may use your credit cards, but you are also an Adult, and know that you should pay off your debts.
Doesn’t it make you feel special spoiling yourself like this? Are there any other decadent financial pampering you can do for yourself ?
This paper examines changes in debt, assets and net worth among Canadian families with debt over the period 1999 to 2012, by selected family characteristics. It also examines the extent to which two key ratios of indebtedness, the debt-to-income ratio and the debt-to-asset ratio, varied over the period.
In 2012, the percentage of Canadian families with debt was 71%, up from 67% in 1999. The median debt held by these families was $60,100, up from $36,700 in 1999 (in 2012 constant dollars).
Between 1999 and 2012, median debt and median assets increased for most types of families, but not equally for all categories of families. Median debt, for instance, increased faster among those in the 35-to-44 age group, among couples with children under 18, and among mortgagees.
Between 1999 and 2012, the median debt-to-income ratio rose from 0.78 to 1.10, while the median debt-to-asset ratio remained stable, at around 0.25. Families in the 35-to-44 age group witnessed significant increases in both their debt-to-income and debt-to-asset ratios.
In 2012, 35% of Canadian families had a debt-to-income ratio above 2.0—meaning that their debt was at least twice the level of their annual after-tax income. This compared with 23% of Canadian families in 1999.
In 2012, 14% of families had consumer debt (i.e., debt other than mortgage debt) that was larger than their annual after-tax family income. In comparison, 8% were facing the same situation in 1999.
So the long and the short of it is yes Canadians are carrying more debt, their assets are worth more, but as usual you need to look a little closer at some of the data to see the more disturbing findings in the report (that confirm things we all keep suspecting, younger Canadians with young families (with kids) are starting to drown and the ocean continues to rise). I put that last bullet in bold to emphasize the growing consumer debt “balloon” that is inflating without control and when interest rates go up, wait for the big bang.
Debt and Asset as a Ratio
As you can see the value of assets has gone up as much as debt, however comparing it to disposable income is a little more worrisome.
Percentage of families with debt, 1999 and 2012
This table displays the results of Percentage of families with debt 1999 and 2012, calculated using percentage units of measure (appearing as column headers).
Families with debt
Age of major income earner
15 to 34
35 to 44
45 to 54
55 to 64
65 and over
This table has some more worrisome number showing that folks 65 and over “with debt” has increased significantly. Seniors carrying debt loads? Why?
Median debt and assets, families with debt, 1999 and 2012
This table displays the results of Median debt and assets Median debt, Change, Median assets, 1999, 2012 and 1999 to 2012, calculated using 2012 dollars units of measure (appearing as column headers).
1999 to 2012
1999 to 2012
Age of major
15 to 34
35 to 44
45 to 54
55 to 64
65 and over
The age group 35 to 44 has had it’s debt load double, and while it’s assets are up, they have not doubled. Is this a “debt bubble” that is going to go boom if interest rates go up?
So it seems our assets have increased in value (but that does include real estate, which has increased significantly over this period in most Canadian Cities).
bybigcajunmanoriginally published onMarch 30, 2015
For my regular readers you will remember that I have a deal with my children, that I will attempt to pay for their first degree, in exchange I will not pay for their wedding ceremony, with the proviso that if I am asked to help out on the wedding (which I will do, I am not as heartless as I’d like to think I am), it is my party as well. A follow on proviso is that they pay for any future degrees (although I will attempt to help out if it is possible).
With this in mind, my middle daughter decided to go to Chiropractic College, and applied for a Student Line of Credit. Most of the big banks, either:
Don’t offer very much money which is a problem as Chiropractic College is a very expensive degree
Weren’t interested in dealing with her
National Bank of Canada
This led to going to the National Bank of Canada, which does offer a Student Line of Credit family of loans. The amount they will loan depends on what program you are in, and they view Chiropractic College as a “health care professional” program thus they will loan her enough money to cover most of her expenses (mind you the degree is even more expensive, because she has to “live” in Toronto, which is not cheap). The nice part of their Student Line of Credit is , “…no payback of principal (sic) or interest while you are at school…”, which is useful.
My daughter thought she had set up one of these fine life sucking debt creatures (no I am not going soft on debt, I still hate it), however, she was mistaken. I ended up having to co-sign on her application (so really it’s my student line of credit), and this is why I am not happy (as well).
My daughter has been getting calls from the bank since she had the Line of Credit set up, and the problem kept getting “cleared up” (or more precisely it went away). Finally, this past week, luckily she was home, she got another call, and she went back to the National Bank branch where she set everything up, and she finally got to the heart of the problem, which was, they had not set it up a Student Line of Credit at all, they had set it up as a “regular” line of credit, and they were kind of miffed that she was not paying her minimum payments.
I was not present when all of this silliness transpired, but my daughter worked hard to start straightening the mess up. The young lady she spoke to first, was smart enough to figure out that she was out of her depth, and the young man (who was lucky enough to be working on a Saturday) she dragged into the mess started to peel this smelly onion of a problem. He was the lucky one to figure out that the “Student Line of Credit” was set up as a regular “Line of Credit” and then realized the Pickle of a Predicament this created.
Evidently someone from “Head Office” will need to clean up the mess created by the young lady who made the blunder setting things up initially, but the young man from the branch has triggered the Hazardous Debt cleanup team that will work on this problem (I hope).
Why does this all matter to me? First, I am very proud that my daughter dealt with all of this without my intervention. The important point for me, is that whatever Credit Rating penalties that might come out of this blunder, is going to be mine, because I am the co-signer on this debt vehicle, so the National Bank will soon get to enjoy the special treatment I have given TD over the years, stay tuned, this looks like it is going to be an interesting follow up.
There is a Moral ?
The moral of this story? (even though it is not finished yet)?
Always follow-up with your bank when you set up a new account with the bank to make sure it is set up correctly. I have had Spousal RRSPs that were set up as regular RRSPs more than once, so follow up every time.
Careful what loans you co-sign for, they can end up hurting your credit rating