Open your mailbox on any given day and you may find a credit card application inside that tempts you with its offer of low monthly interest. Turn on your television, visit a movie theater or listen to your car stereo and you’re similarly bombarded by hundreds of advertisements for a myriad of “must have” products. We’re buying more iPods, big-screen TV sets and other products than we ever have before.
The result? Massive consumer debt.
How bad is the problem?
The Bank of Canada estimates that Canadian consumers now owe more than three quarters of a billion dollars to their creditors. This means we are racking up personal debt (including personal lines of credit, bank loans and credit cards) at an unprecedented rate.
Some of this new debt is being generated by people who have been discharged from a bankruptcy or proposal proceeding. In other words, people who have had to go through the process of filing for protection from their creditors, completed the process and now, free to rely on credit again, have waded right back into the swiftly-flowing river of debt.
Worse yet, this renewed debt usage is often at the enthusiastic urging of highly-competitive banks and department stores. Caught up in their spending, these previously-insolvent debtors forget far too quickly the stress and burden of taking on too much credit. And just like before, they eventually reach the point where they have much debt and no way to pay it down.
Canadians used to be savers.
Back in 1985, the average Canadian socked away close to sixteen per cent of his take-home pay. A decade later, the savings rate had slipped to a little more than nine per cent of our after-tax income. By 2003, the average Canadian saved just 1.4 per cent of his pay.
It’s become painfully obvious that the average Canadian has limited understanding with respect to the correct and proper use of credit. This lack of education has resulted in increased consumer financial failures and a reliance on the Bankruptcy and Insolvency system to provide a fresh start – often more than once. And as bankruptcy has become less of a social stigma, repeated use of insolvency to resolve consumer financial distress has become more commonplace.
The answer to this problem may be early education.
We need to educate kids long before bad spending habits are formed. At this time, the education system does not teach most middle and high school students about personal financial issues, such as the benefits and risks of credit or personal budgeting. Should this not be a major priority for our educational systems to tackle?
Luckily, many of the materials our educational institutions would need to launch such a program in their schools are already available from the Office of the Superintendent of Bankruptcy. The OSB has created a range of education aides (available on their website) to assist in the education of children aged five through 15, as well as a detailed guide for young adults attending and completing post-secondary institutions. These materials could be made available as either mandatory or elective units in the public school system to assist in the prevention of financial difficulties.
A. Farber and Partners create Debt Education Center that contains videos to solve and predict debt problems – https://www.afarber.com/debt-education-centre
Isn’t it about time we put the brakes on out-of-control spending habits and encouraged consumers to be not only better educated about their debt but more responsible for it as well?