Easy money, hard reckoning
Despite persistent warnings, too many Canadians seem content to believe that Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty are crying wolf over not-too-distant rises in interest rates.
Instead of tightening their belts and paying down the credit cards and lines of credit as advised, they’re borrowing more money than ever.
This is dumb financial planning.
At this precise moment, excluding mortgages, TransUnion analysts have pegged the average Canadian’s debt at $27,485.
In Alberta, where Premier Alison Redford recently gave hint of tax increases because of “sudden” billion-dollar shortfalls from the oil patch, its unaware denizens led the way in personal spendthriftiness - increasing their average debt by a whopping 11.2% year-over-year.
Again, exclusive of mortgages, the average Albertan owes $37,377, up from their debtload of $33,613 in 2011 when both Carney and Flaherty first red-flagged their warnings.
Quebec comes in the lowest at $20,102, but it is still almost $2,000 more than the year before.
In other words, no one is listening. Throw those “excluded” mortgages into the mix, and it is time to perk up those ears.
The allure of cheap money - with prime currently around 1.5% - is obviously irresistible, even though credit card companies ignore it.
The bankers of plastic credit will issue a credit card to basically anyone who applies.
This is wrong, but it happens.
When Britain began looking for a new governor of the Bank of England, it did not go after Mark Carney and offer him the most money the world’s ever paid a central banker - some $1.3 million a year - because it wanted a second-rate economic mind to run an institution with 319 years of history.
It wanted the best, and got it.
And Carney’s grilling last week by Britain’s treasury committee only proved he could handle any heat tossed his way.
If there is a positive side to TransUnion’s assessment, it’s that Canadians have a low number of delinquencies on its lines of credit.
But, when you pay the minimum required, and the minimum covers off only the interest, dodging delinquency can be relatively painless.
Double it, however, and panic will set in.
Consider this yet another warning.