Personal debt is usually a reason for concern. Many people struggle with it every month. For some Canadians, however, the situation has reached a state of hopelessness. Three out of ten Canadian families are unable to pay their monthly bills and expenses. Half of this group is struggling with insolvency. Personal bankruptcies are on the rise.
The problem isn’t that the monthly necessities are too expenses. It’s that Canadians have been on a spending spree and accumulating debt that is now coming to haunt them. Someone has to pay the piper.
In a recent survey, almost 30 percent of people admitted to not being able to cover their monthly necessities. If this group were to include those that are a mere $200 from insolvency each month, the number rises to 50 percent, as opposed to 46 percent a year ago. Many Canadians are simply not paying off their debt or ignoring it as the pile keeps growing each month. They feel helpless and hopeless about what to do. Financial optimism has reached an eleven-year low.
Many debtors see bankruptcy as the only solution. Bankruptcy filings are up by almost 9 percent from a year ago. In some areas, such as Saskatchewan and Ontario, the fillings are up 19 percent and 12.2 percent, respectively. These numbers are expected to worsen. Those who intend to borrow to pay off their debts will find higher interest rates making borrowing money more costly. It is unlikely that the Bank of Canada will cut its interest rate in 2020.
At this time, Canadians are finding it costly to borrow, and those costs will probably only get higher. Canadian provinces will soon announce their 2020 budgets. This is an excellent opportunity to reverse the mushrooming debt escalation and take control of Canada’s finances.
Since the financial crisis of 2008, government debt has ballooned from $837 billion to $1.5 trillion in 2019. This increase is almost entirely due to a continued increase in government spending. The Canadian debt shackles every Canadian man, woman, and child with $39,483 of debt. That is only an average. Some provinces, such as Newfoundland and Labrador, have a higher per-person debt level. In Newfoundland, the individual government debt allocation amounts to $48,478.
Taking a look at the debt-to-GDP ratio, we find that Ontario is at the top of the list, with 75 percent of debt. Newfoundland is only slightly lower at 73.6 percent.
As in many other countries, Canada’s Boomer generation will generate more debt due to anticipated, necessary health care costs. The obvious problem with increasing debt is that interest rates will increase. In 2020, the combined provinces spent $55 billion on interest alone. That is a huge chunk of the total budget and leaves less for programs such as health care and education. When corporations are faced with increased interest rates, they are less likely to raise capital for growth and investments.
Government debts that are being currently accumulated will eventually become the burden of a generation not yet born. With its current policies, Canadians find themselves born into an ever-increasing amount of debt. Canada’s only remedy is to reduce its spending and debt. The first step will lead to the second and will improve the lives and opportunities of future generations.