DH = Dear Husband
Canadians’ debt: ‘in danger zone’
“Canada’s debt soars into danger zone”. So read the headline for Barrie McKenna’s article in the Globe and Mail this past Monday (October 15, 2012). Canada’s average household debt-to-income ratio has reached 163%. Apparently, 160% is regarded as the threshold to avoid – the point that signaled economic catastrophe in the U.S. and Europe – and Canadians have surpassed it. Only a few months ago, I was completely immune to statistics like this. There was a certain numbness surrounding my brain that prevented the significance of numbers from penetrating to my consciousness. But this week, I was eager to know: How do we fit into those stats?
DH and I started to punch in numbers, and we found that we were incredibly on the mark, hitting the average almost exactly. There’s something comforting about being average – even if that average is in the “danger zone”. Through my school’s online library, I have easy access to Statistics Canada’s Social Trends Magazine, and in researching the debt-to-income ratio, I came across an article written by Matt Hurst, April 21, 2011 (Catalogue no. 11-008). In “Debt and family type in Canada” he touches upon a recent history of family debt-to-income ratio. In 1990, it was at 93%. In 1994, debt first surpassed income. By 2009, it had hit 148%. (Hurst) This week, we’ve reached 163%.
Frogs and hot water
“The story goes that if you drop a frog into boiling water, he will sense the pain and immediately jump out. However, if you put a frog in room-temperature water . . . and . . . gradually turn the water up to boiling, the frog will not sense the change. The frog is lured to his death by gradual change” (Ramsey, 13). This illustration, from Dave Ramsey’s Total Money Makeover, provides a lens through which to view the rise in Canada’s average debt-to-income ratio by 70 percentage points over 22 years. The water is getting hot, but we’re in denial. It’s been so gradual, and it still feels comfortable.
My comfort at being average was lessened by a sobering fact. At 53 and 49 years of age, DH and I are too old to be average. “Younger Canadians (aged 19 to 34 or aged 35 to 49) were more likely to have debt than Canadians aged 50 to 64. This corresponds with the lifecycle. Younger households take on debt to purchase homes and related goods early in the life cycle and then spend the following years paying off the debt. Trends in average debt levels generally mirror these results: debt levels were lower for 50- to 64-year olds . . .” (Hurst, 43) Any remaining vestiges of comfort in being average disappeared when I realized something else in my research. DH and I had the math wrong. We had been dividing our debt by our gross income. To get your debt-to-income ratio, you have to take your total debt (credit cards, line of credit, car debt, mortgage), and divide it by your after-tax income. After punching in those numbers, I find that we’re way above the average. We’re at 226%. Ugh!
A generational divide
A handful of people at my work know that I write this blog. After my radio interview was aired at the beginning of this week, one of my colleagues in the know approached me and said, “People aren’t going to be able to relate to you. Your debt isn’t that bad. You have a mortgage and a business debt – those aren’t bad debts. Some people live pay cheque to pay cheque and have creditors calling them . . .” Her response differed sharply from my mother’s. When Mom found out that our debt was over $250,000, she said she was stunned. “You and [DH] will have to live like you’re poor. You won’t be able to retire. You’ll just have to keep working.” What accounts for this difference in attitude? It’s a generation thing. My colleague is in the 34-49 age group, and she’s comfortable in her own debt, which she tells me is bigger than mine. My mother and father, on the other hand were debt-free by the time they’d turned 40. I find myself appreciating the wisdom of my parents.
Another colleague at work quit smoking after 32 years, and this summer, she celebrated her first anniversary of being smoke-free. I asked her what had accounted for her success. She had tried several times to quit smoking over the years. What made this time different? “I was sick of being sick,” she said. On other occasions, she had tried to quit because her doctors had told her to. This time, she quit because she wanted to. Although the hazards of smoking have been indisputable for decades, she had to be personally convinced of them before she could succeed. I think it’s the same with debt. The alarm bells are ringing. We’re in the danger zone. But unless individuals are personally convinced, we won’t do much about it.
I remember thinking, after DH had lost his hi-tech job and we were more strapped and stressed than we could stand, “What is God doing?” I’m a Christian, and the Bible says that God loves us and that even hardships are for our benefit. I could see no benefit to the crush we experienced. But I do now. It made us sick of being financially sick. It took that kind of a trial by fire for us to feel the heat, and it inclined us to be receptive to an invitation out of debt. The water is way too hot. We’re jumping out.