A recent survey conducted by Manulife Bank of Canada found that most Canadians feel that mortgages are not included as part of having debt. Nearly 70 per cent of respondents in their 20’s said they could have an outstanding mortgage and still be debt free, compared to 29 per cent of respondents in their 50’s.
The survey also showed that almost 40 per cent of home owners feel more comfortable with debt than previous generations. Clearly a younger generation of Canadians feel more comfortable owing money.
Let’s take a look credit in the past to see how we’ve become so comfortable with debt today.
Back in the early 20th century, Canadian’s industry was mostly manufacturing, farming and some service. Canada had participated in two World Wars and people needed to rely on their earnings and savings to get what they needed to survive and prosper. Their homes were their source of investment. Money was harder to come by than it is today. Past generations did not have credit cards and lines of credit were harder to earn approval for. Consumer goods were not nearly as available to consumers as they are today. Consumer prices have risen steadily in the past 75 years with a particularly sharp increase in the 1980’s. Canadian households have been steadily assuming more debt relative to their disposable income particularly since the 1980’s when the debt to income ratio was more around $0.70. In the past, the rate of inflation averaged between 2 and 3 per cent annually.
Today, Statistics Canada has shown that the average Canadian owes about $1.63 for every dollar they earn in disposable income with a holding inflation rate of 1% since 2010. The rate of home ownership is ever increasing as creditors are offering more accessible and attractive borrowing terms to consumers. If a mortgage becomes difficult to manage, creditors offer home owners Home Equity Loans to borrow from your home to repay unsecured debt. Managing a mortgage has never been so easy for consumers, that consumers have enough left in their pockets to assume more debt from credit cards, lines of credit and other loans.
Low interest rates on secured debts have lowered the sense of urgency about borrowing. Having debt is more acceptable among Canadians than it was in past generations. The discussion of debt by the Bank of Canada and other leaders within the credit industry has also increased in the past several years, further contributing to the comfort level of living with debt. Debt used to be an issue no one wanted to talk about, let alone deal with. Today, it is a topic popular enough so much as to have a month dedicated to it such as November literacy month. Parents and schools are discussing personal finance management with their children and students at a much younger age than ever before. Home owners who said their parents taught them a lot about debt management were twice as likely to say their debt was in good or great shape.
While these are all positive moves in helping Canadians become more responsible with their money at an earlier age; we need to ask ourselves, are we really being wiser with our money or just more comfortable with managing our borrowing? Clearly the average Canadian is borrowing more money from more sources of credit than ever before. Now there are more ways in how to borrow, where to borrow from, and how to repay it at different levels of interest. Like our grandparents would say, we’ve just become very comfortable with taking on more than we can chew..
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