Pay up or get out

The middle-class life has been built on debt for a decade. Now that bill is due.


Pay up or get outWhat surprises Marcus Leech the most is how fast it all fell to pieces. Six months ago he was working as a computer security expert at Nortel Networks in Ottawa, earning about $127,000 a year. He knew the telecom giant was on shaky ground. But with three decades of experience, Leech was sure he could land another good job if need be. So when his wife, who had stayed home to raise and educate their three children, went to school to become a pharmacist last August, Leech thought nothing of tapping his line of credit for the $9,000 tuition. Nor did he fret much when he took out a mortgage of around $280,000 for a new home in Smiths Falls, Ont., or when he borrowed thousands to replace the family’s two aging vehicles. In all, the family piled on more than $400,000 in debt in the last few years. “When I was young if you got heavily into debt it was a very serious issue, but now it’s just seen as normal,” he says. “If you’re an average middle-income family with two or three kids and only a single income, debt is the only way to keep the family going.”

Then, last November, the hammer fell. Nortel told Leech, 46, that his last day would be Jan. 11. At first he took solace in the fact that after 20 years at the company he was due a generous payout of around $100,000. But three days after clearing out his desk, Nortel filed for bankruptcy protection, killing any prospect of a severance cheque. All Leech got was $11,000 in vacation pay, which is all the family has had to live on since. With his hopes for quickly finding a new job shattered, the family has radically scaled back. But the bills continue to roll in, forcing Leech to sometimes resort to credit cards to make ends meet, sinking the family even deeper into debt. With their finances spiralling down, he knows everything is at stake, including the roof over their heads. “I have no idea how we’re going to eventually crawl our way out of this situation,” he says.

For most of the last century, debt was a dirty word in Canada. People spent years saving up to buy a house in order to keep their mortgages to a minimum, and families that did find themselves in hock scrimped and saved to fight their way out. But starting in the 1990s our attitude to debt changed. As interest rates fell and soaring house prices made everyone feel richer, our nation of savers became a nation of borrowers. Debt emerged as the great enabler, the ticket to the trappings of a better life, to flat screen TVs and shiny new SUVs. Now the upward march of real estate has reversed course, taking the household net worth of Canadians with it. At the same time, a surge in pink slips has made it impossible for thousands of Canadians to keep up with the IOUs racked up when times were good. It’s payback time, and it’s a bill many Canadians can’t afford. “Our grandparents said save for a rainy day,” says Laurie Campbell, executive director of Credit Canada in Toronto and an expert on household debt. “Turns out it’s not a stupid idea after all.”

We’re now at the point where regular Canadians are carrying even more debt than Americans. It’s true we used to save much more—as recently as 1990 we socked away 13 per cent of our disposable incomes—but the average debt carried by Canadian households has jumped 71 per cent since then to $90,700, growing six times faster than the average household income. As of last year, we only saved three per cent of the money coming in the door, and according to the consulting firm Deloitte, the average Canadian family now owes more than 1.3 times its disposable income. That puts us in a slightly worse position that the typical American family, which owes just over 1.2 per cent of its disposable income.

When house prices were rising, none of that seemed to matter. After all, our net worth was rising every year too, so it looked like no matter how much we borrowed, we were still getting wealthier. But the sudden downturn in house prices has exposed much of that wealth as a mirage. According to the Teranet-National Bank House Price Index, house prices have already dropped by four per cent since last August on a national level, and in many cities out west, the slide has been much worse. Foreclosures are surging in Calgary, where lenders launched 375 proceedings in January, a 71 per cent jump over the same period last year, according to Foreclosures Canada Information Systems. Similarly, there were more foreclosures filed in B.C. Supreme Court in January alone than in the first five months of last year combined.

It’s only been months since our economy began to really implode, but the fallout is already showing up in bankruptcy courts. The Office of the Superintendent of Bankruptcy Canada recently reported that bankruptcy filings in December had shot up by nearly 50 per cent over the same period in 2007. Ellen Stevens, a self-employed book editor from Toronto (who asked that her real name not be used), is one of those being forced to declare bankruptcy, and she blames easy credit for the seriousness of her plight. After a personal trauma sidelined her career a few years ago, Stevens says she began to use her credit cards to pay for food and rent. As the recession took hold, she was unable to land enough editing contracts to make ends meet, and she amassed $50,000 in debt. Yet, even though she wasn’t earning a steady paycheque, banks and credit card companies fell over themselves to ramp up her credit limits. One credit card company upped her limit to $28,000, even though the most she’d ever earned was $52,000 a year. “You never speak with a person at the bank, you’re just a number, so the debt seems almost unreal,” she says. “Without that easy credit I’d have been forced to take stock long ago.”

Of course, everything has changed now. Credit is no longer easy, and the wealth of Canadians is no longer rising. The question now is, what will that mean for the millions whose reach exceeded their grasp? The answer, many feel, is a correction that, while painful, is also inevitable and could leave us in a more secure position when it’s over. Already our savings rate is recovering at a truly astonishing pace. In the fourth quarter of 2008, it was back up to 4.7 per cent, a big leap from 1.9 per cent in fourth quarter 2007. Our mortgages are already shrinking, too. Last week CIBC World Markets said the average mortgage has fallen in size by between five and 10 per cent, partly reflecting lower house prices. Even non-mortgage consumer credit growth has slowed to nine per cent from 11 per cent earlier in the year. “The current pace of credit expansion is roughly half of what it was six months ago,” senior economist Benjamin Tal recently calculated.

Still, there’s a paradox at the heart of the current efforts to jump-start the economy, says Clarence Lochhead, executive director at the Vanier Institute. The government and our central bank say the solution to our current mess is to slash interest rates in the hope consumers will start borrowing and spending again. Yet that’s exactly what got us into trouble in the first place. He worries the massive stimulus programs under way could drive consumers deeper into indebtedness, just as they’re showing a glimmer of fiscal responsibility. “When people put off buying a new item, that translates into a lack of consumer confidence, but on the other hand it can be a very rational budgetary decision,” he says. The numbers, though, seem to suggest that Lochhead needn’t worry. Back in December, the Bank of Canada warned that even without increased spending, the number of “vulnerable households” with a debt-to-income ratio above 40 per cent could double by the end of the year. Borrowing in order to spend more than we make has never been sustainable over long periods of time, and when it gets out of control, a recession like the one we have now always seems to come along to make sure we pay up.

But while the slowdown may be necessary to balance our accounts, that’s not to suggest it will be pleasant. For thousands of Canadians like Leech, paying down debts that once seemed quite manageable will become a crushing and onerous process. As Leech says, even when he was partly living on borrowed money, he didn’t feel like he was living the high life. They didn’t go on lavish vacations. They drove inexpensive cars. His daughter’s friends would giggle at the family’s 24-inch “vintage” TV from the early 1990s. Now, his job is gone and his house is no longer rising in value, leaving him only with a $400,000 debt—and the hope that things will get better. He hopes that his EI cheques begin to arrive soon, and he hopes that his wife will be able to land a steady job as a pharmacist. “If she can make $50,000 a year and I can stay on EI for a couple more months, we should be able to scrape by and keep the house,” he says. “If not, things could get pretty bad.”

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Pay up or get out

  1. The growing reliance upon consumer debt is, in large part, a product of a sense of entitlement fostered by marketing. There has been a continuous rise in expectations. Possessions which were obtained by the early boomers in the 50’s and 60’s are now considered a rite of passage for young couples. The mega-house, the upscale cars and foreign travel which were once earned after a lifetime of work are now expected at far too earlier an age. This crisis of consumer debt is a result of unrealistic expectations raised in order to uphold an economy that was false.

    • It’s very hard to argue against anything much stated in this post, and I think most of the people who were interested enough to open this story would agree, for their own very personal reasons.
      Providentially, I have been able to draw back from the debt chasm that I nearly stepped over, and things are rapidly improving for me. I know that I will never again make the mistakes I made before this recession, and I count myself fortunate to be able to maintain the nice things I had, and the security of my family, despite circumstances in the past four months that have included a job loss and high debt.
      It’s time now to return to the simpler time of our grandparents, as is cited in this article.
      I remember as a cocky youth how I once asked my now deceased grandfather why he didn’t have a credit card. In response he smiled at me, slapped his back hip, and said: “If I open my wallet and see that I have enough money to buy what I need, that’s my credit … and I never go over my limit.”
      Words to live by, as this greedy generation (including myself) has learned.

    • My husband and I are 28 years old and should have the majority of our student debt paid off within 24 months (largely due to being cautious with how we spend our money).

      We take public transit and walk to most locations (we don’t own a car since we live in the city and we don’t see a need – we rent from time to time if needed), we cook and bake from scratch (from real scratch, not just prepackaged powders that you sprinkle on your food), we still rent an apartment because we’d rather save until we have a sizable down payment for a house or condo (and when we do buy, we want something small), most of our furniture is still secondhand or used. No cellphones, no flat screens, not many fancy gadgets. I did save for refurbished IPODS (much cheaper then buying new ones) which we listen to on the 40 minute walk to work each morning (and the 40 minute walk home) – that purchase was worth every saved penny.

      People can’t understand us, but we find that we actually don’t need those things. We’re lucky in that we have a tight group of friends who think in a similar manner, but in my generation those sorts of people are hard to find (although we do exist).

      We have less stuff then most, but we still have lots of fun and seem to manage to do more then most of our family members who have lots of new shiny things. It’s not as though we don’t spent money, because we do. We enjoy going to farmer’s markets and buying local and fresh produce, we enjoy going to see live bands (local or Canadian acts that normal cost $10 or so), and usually trying to save for a trip or some sort (we’ve been to Europe very cheaply by hitting up campsites) and we’re currently saving for a trip top Asia in 2010. And we’ve been able to do this while also making substantial contributions to our RRSP’s since we were 23.

      I actually like my hand-me-down furniture because it gives our place an eclectic feel. How is it that so many people I know have new everything? Family and friends are constantly asking when we’re going to buy a car (why, so we can get lazy, stop walking and spend money on something we don’t really need?), or a house (in this market? sorry, we still have student debt to tackle) or make some bigger purchases. I’m actually surprised at the constant pressure (not just from young people but from older people as well) to buy, buy, buy. People seem worried or concerned that we haven’t bought a house or a car yet.

      While our stuff may not be impressive to lots of people, our life is richer then most.

      • Bravo to you Kate, you are a very rare bird indeed these days. You also seem to have a lot of common sense, the most uncommon thing of all these days it seems.

      • Kate,

        In the last 6 months even prior to this “Great Recession” fears being published daily in the media, I myself have convinced myself that I do not need let’s summarize by calling everything you mentioned “bling”. At 24 with a full time job, but student debt(lower then most) I realized I don’t need a car, and to purchase a house would make me a slave to my mortage, hydro etc….You and your husband hav ethe right idea, live a little care free with rent now, save a substantial down payment and buy when you are positioned to purchase with your own security blanket in place. I have lots of friends and family who purchase because everyone says Real Estate is the way to go and to build equity. Those same friends and family are now paying a $300 Grand mortgage on a property that is worth perhaps $280 now and possibly with decline further. All this time they have forgotten what life really is. To enjoy yourself, not in debt yourself. Some of these same people I speak have are now doing two jobs because between the high mortage, the 3 Series Beemer and everything else that is bundled in the COLA, they actually have a much less quatlity of life then I do since I sold my car, and curbed my spending on items that are just not necessary and provide no value to my quality of life.

    • Back in the 1950s and ’60s, people thought it was normal for a family to have one bathroom, or for kids to share a bedroom. I’m not sure about the Canadian stats, but the average American house size has more than doubled since the 1950s; it now stands at 2,349 square feet. We need a shift back to homes of manageable size.

      My husband and I have always been interested in eco-affordable housing and have a small two-bedroom, 1 bathroom home. Right now our boys share a bedroom – although we have converted part of our basement into an extra room (small but manageable) which potentially one of them could move into when they get older. People think I’m nuts, but frankly I don’t think we need the space. We don’t need the stuff to fill the space. Four people do not need more then 1 bathroom. We manage. We also don’t need extra rooms for guests who come a handful of times a year (the boys can bunk in with us on blowup mattress and the guests get their room, there’s a pullout couch in the basement and in the living room).

      Has anyone heard of the minihome?

  2. Unlike everyone else I know and everything the financial “experts” were saying for the last 20 years I bought one modest house and declared I would be morgage free before I turned 40. Made it by 39. The “smart” people were putting all extra money in the stock market and exotic “financial vehicles”, what ever in the hell they are. However when things started to go sour I dumped my morgage free house just ahead of the collapse. Payed off the credit card companies(scum sucking vultures) and now owe not a dime to anyone on planet earth. Rent a modest place and have more money in the bank at the end of the month than I did at the beginning. Also have peace of mind. What in the hell was this guy thinking, running up 400,000 dollars in debt. And he portrays himself as living modestly. Obviously he was living beyond his means. By the way I never earned anything remotely near 110 grand a fricken year. What the hell was he doing? You see I learned that old fashioned saving ethic from my parents and took it to heart. I knew stock markets were just a giant scam to remove money from suckers so I never put any there. I think everyone in the world has lost their minds.

    • Well done namesake very well done. I am much like you in this repsect only I wasted my 20’s and 30’s with debt. Now I too keep life simple no debt no how and I save and invest 30% of my gross – even with the market crash I aint doin half bad as I loaded up on gold awhile back when it was low and am slowly getting out of it now and buying growth stocks there are some fantastic freaking deals right now I tell you! . buy low sell high works every time!

    • Wow, I really love all the responses to this article. I am in my 30’s (own a home) and other than the mortgage – I am (consumer)debt free. It’s not easy living this way, as I am surrounded by people who live way beyond their means; people who go on expensive vacations, charge even groceries to their credit cards. I am living much more modestly – I have 2 small children and do allow for special things once in a while i.e. tickets to Disney on Ice, but will I be taking them to Disneyworld anytime soon? Probably not. There is much more benefit to knowing that our house will be paid off by the time we turn 45, and we can concentrate on weddings and grankids without worries. When I was growing up I didn’t even have a TV with a remote control, and I can safely say that I am much more content in my life, then a lot of other people who grew up with luxuries. I concentrate on having fun with my kids, playing with them and showing them the beauty in nature, and all things wholesome. It all begins at home.

  3. How revealing it is to hear Marcus Leech’s whine that , “If you’re an average middle-income family with two or three kids and only a single income, debt is the only way to keep the family going.”
    The house is increasing in value? No, Marcus, your house is worth nothing till you sell it and then what are other houses worth and where are you going to live?
    Now the silly bugger is living on credit cards (18% interest?). What will he do when they’re maxed out?

  4. “When I was young if you got heavily into debt it was a very serious issue, but now it’s just seen as normal”

    Bull. It’s normal to people who were clueless, but there were plenty of people who were still well aware of the risks and dangers of debt. Yes, many people fell for the debt trap, but that’s no excuse – just because a bunch of idiots flung themselves over a cliff doesn’t mean you had to follow. For all the troubles this recession is causing, and will cause in the future, we’d better learn how to live within our means now, before this trend continues and the next recession is that much worse.

  5. I agree with you but I think this fool would still go off a cliff if he had a government job for life. Even when he was working he was consistantly spending all 127 grand and then some. Did he ever intend to stop doing that? I recently saw one of these get out of debt shows(all the rage now, go figure) about a couple clearing 11 grand a month but were spending 12. Dear God, has the whole world gone nuts? Time for adults to start acting like adults!

    • Let’s not forget that we are all at risk of ending up in the same situation as Marcus Leech. Isn’t that what we should all be taking from this current economic crisis? We shouldn’t be demonizing or justifying his behavior, bur rather looking critically at the choices that we make.

      Debt is fine if it is planned, rational, budgeted for. Most of have trouble accurately assess our spending. Obviously I don’t know about the Leeches spending habits, so I won’t comment specifically on theirs, however, I do know my own and that of my friends and family. Far too many of those who think they’re within budget month-by-month aren’t when it’s done over a year. All those little things really added up, and we can’t always account for it.

      As Mr. Leech pointed out they didn’t go on ‘lavish’ vacations (whatever that means) or have new technological equipment (he mentions the old TV, which I’ll assume is reflective of this other purchasing habits). While Mr. Leech himself may not be spending frivolously, a lot of people are living far beyond their means (or just within our means). The problem is that they can’t seem to realize where there money goes. I am sure that if someone had sat down with him a few years ago and really run over his finances with him, he could have easily identified countless areas of unnecessary and draining spending. I’m not blaming him – he was living the way most of us do.

      I’m certainly not trying to be ‘self-righteous’ by noting the different ways I’m now working to save money; I’m acknowledging that I could easily be in his situation, at any given time, and now I work to try and live in a manner that reflects that reality. I could lose my job. My husband could lose his job. Not just in today’s unstable climate, but at any point in our lives this could happen. The problem is that it is easy to forget that. And it’s even easier to spend that $4000 a month that you make, because you can.

      I can’t even count the number of times I used to justify unnecessary spending by assuming that the things I wanted were things that I needed. I convinced myself that these things weren’t luxuries, they were essential. I have to work hard to think about my spending.

      Personally, we know aim to always try to live a little under our means. I think, ‘what can we afford’, then I look for a cheaper alternative. Realistically we could have easily managed with a more expensive home, but when we found a smaller, cheaper home and worked out how much more we’d save a month in mortgage payments, our decision was made. We calculated the difference we would save each month and now that money is saved.

      A family of five should be able to eat for $200 a week – and yes it is possible. Sorry, I disagree with all of you who feel otherwise. It’s difficult and challenging, but cooking from scratch is more economical than most people think.

    • patchvonbraun after you described everything it is no different than what people in communist countries live. the only thing they could say nothing much against the superior of living and could not go into debt. instead they had to wait for government to build enough apartments so they can move their family into their own.

    • I can assure you sir I was making a hell of a lot less than the guy in the article, raised two kids, enjoyed life on a budget and never racked up 400K in debts. We got by on one used car, never bought new. I can also assure you if I were making six figures I would be retired. Wow you seem realy bitter. Credit card companies calling you a lot I bet. Cheers.

    • Wait a minute…

      Nobody forced him to borrow $280,000 for a mortgage for a new house in Smith Falls or borrow thousands to replace his 2 cars.

      As you say, you are not rich with $127,000 a year gross. If he had bought a modest older home in Ottawa, he might just have needed one car instead of 2. If his wife had worked, he might not be in the situation he is right now.

      Doesn’t matter whether you make 127,000 or 50,000 a year, if you spend more than you make, you are doomed.

  6. I never cease to be astonished by people’s willingness to go into debt to live the good life. I inherited my mother’s financial philosophy of not buying what you cannot pay for.

    I got into debt for only two reasons: to go back to school and to buy a house. I never bought a car and did not even learn how to drive. I use public transit or walk.

    We paid off our house in 14 years just as I was laid off. I the spent two years to get my Masters while working part-time. 10 years after that we divorced but I had just enough to buy a small condo. Since then, I’ve travelled abroad twice a year and maxed out my RRSP contibutions.

    Granted, I am better paid than your average person but I am not rich. If a spent like some of my friends and family. I would still be paying a mortgage, unable to put more money in my RRSPs to go on foreign vacations.

    And yes, I bailed out of mutal funds and balanced funds because the meteoric rise of the stock markets made me unconfortable. The only mistake I made was to bail out three years earlier than I did. So I have suffered no financial losses although I did not make any big gains either.

  7. Debt is BAD. This is a Fact that cannot be ignored.
    There is no such thing as GOOD Debt.
    There is ACCEPTABLE Debt, such as paying a mortgage for your dwelling, rather than paying rent.
    Some will argue that going into Debt for a Vehicle, or mortgaging your future with Student Loans is also Acceptable Debt.

    Living DEBT FREE is the single most important aspiration a person should have.

  8. zeitgeist.com anyone who is fed up, i would like to offer an alternative and would like to hear the writers comments on this documentary?

  9. The only confusing thing about this whole ‘debt’ discussion is what is defined as debt. ……….. What does debt include? Credit cards, lines of credit, overdrafts, loans? ……….. Does it also include mortgages? ……….. The reason I ask is that, having spoken to bank managers while applying for a mortgage, a line of credit or a loan, I was told that my ‘debt factor’ or something like that didn’t include the mortgage (or that the mortgage was considered separately). ………. Anybody have any ideas here? ………. Thanks.

  10. I recognize him as someone I had contact with 20 years ago. Marcus is very talented with computer technology. When you are good at what you do it is always going to be a shock when you lose your job. It will take longer in this job market but I don’t doubt for an instant that Marcus will find another good job in his field.

  11. I am surprised ho righteous some of you people are, In my opinion this man lived a very normal life according to his income, he did not max out his card while he was working, his debts were at a reasonable level according to his income and he was also investing in his wife’s future. Absolutely nothing extravagant in their lifestyle. I am sure that they will be able to manage in the future. He may not be able to find a job at the same pay but with the second income coming in they will be comfortable again. Sometimes it is necessary to use funds from credit cards and similar sources to get you over a short period of time . Yes , people borrow money simply because they want or need certain things in life while it can be enoyed, as long as you know your debt is manageable even if your income drops and you have assets to cover it, I see no problem with it.

    • I have to agree, the self-righteousness is starting to smell bad. Certainly compared to the very poor, the “middle class” (what the hell is that anymore, anyway) are living “lives of luxury”.

      I happen to know where this guy lives, and he paid substantially less for his house than a *much smaller*,
      so-called “more modest” home in the big city he lives beside. Sure, it might look palatial from the pix,
      but it’s located in a very depressed part of rural Ontario, where real-estate prices are very-often HALF
      to 1/3 of what they would be in the city. How is buying a home at a much lower price than in the city
      “living beyond your means”?

      Living where he does, he likely pays vastly less in taxes, and mortgage than do the people who would
      claim that he’s “living in luxury”, and needs to find a “more modest” home. Yeah, right.

      The “he deserved what he got attitude” is completely sickening.

      It’s all very well to blame the guy for “sticking with a dying company”, but when you have a family
      to support, leaping from one frying pan into another isn’t necessarily a sane thing to do. Further,
      if you knew *anything* about the Ottawa high-tech employment market, you’d know that until
      *very* recently it was in very good shape. Most of the folks at Nortel had no immediate reason
      to “leave the sinking ship”. Stick around, get a good severance when you got laid off, and then
      occupy a new, comparable, job more-or-less immediately. That situation changed too rapidly
      for anyone to reliably predict, so I can’t blame this fellow for sticking around Nortel, and then, sadly
      getting screwed by the CCAA situation, and having his severance blow away in the lawyerly breeze.

    • For God’s sake the man was working for a company going off a cliff. While he was working he was consistantly spending more than he was making. If you cannot see the problem here I fear we will be reading about you next. I can assure you he will not be getting another six figure job any time soon. The excement has not yet begun to hit the air conditioning unit. North America is shedding jobs at a frightening rate. Those jobs are NOT coming back. Most of the people who have gotten there pink slips are not even out the door. Wait till there severence runs out(if they got any), EI runs out and credit cards are maxed out. Some credit card companies are getting so worried you can negotiate a lump sum payment a fraction of the total owed and cancel the card. That is if you have anything at all. If you think this is all going to blow over in a couple of fiscal quarters…dream on.

  12. As I have said before, Lou Dobbs has said time in and time out: “the middle class is slowly dying.” Lou Dobbs would always focus on this issue and he has been doing it for years.

    This is just something that we are going to have to get used because it is unavoidable: the rich get richer while the poor keep getting poorer.

    It is sad to see it this way but it is reality and we must all face it with an enthusiastic attitude because it is going to get a whole lot harder.

    God bless

  13. I can’t believe how sanctimonious most of the posters are. Oscar Wilde said: “Those who live within their means lack imagination.” Get over yourselves.

    • Enjoy your debt. I suspect you are up to your neck. Cheers

    • Oh, speaking of old Oscar, just love the guy but he did wind up in prison. Fortunately debtors prison no longer exists. Good thing too.

  14. This is something I’ve been thinking a lot about. The software companies in India encourage us to take car and house loans. When I took a car loan in 1997 and had to quit my job for my kid, the finance company forced me to cough up the entire amount. I had to pay Rs. 320000 for a car worth Rs 180000 and I was flat broke after I cleared it. I found a 3 days/month job and did it for 6 months till I was bale to return to the corporate. After that I swore of all loans. I was forced again to borrow money in 2000 but I made sure that I paid everything back first, within 6 months. Then I saved some money too, learning how, from some sensible friends. After that I have been in and out of work, sometimes highly paid and sometimes poorly paid, but I live as thriftily as I know how. I have often advised my young cousins about funny economies and not to get into debt, but they don’t listen to me.

    Twice I have surfed the economic waves and managed never to go down under, by working and saving in the boom and spending cautiously in the slump.

    I think that the this is a longer slump and that a better and more balanced world order will emerge after it.

    I think that human beings have been consuming too much and now we must conserve our energies for a while. Rest, relax, contemplate, enjoy time with family and if possible, move to the lesser expensive places of the world. We have to enjoy our time in the slump, in the boom-time, we had as a planet, no time for our families or ourselves.

  15. No sympathy for the folks who borrowed over their head. That’s just simple math and they didn’t do it so don’t be whining now. But the paradox is that in order to save, we had to invest in RRSPs, etc. or the value would have been taxed away. But then when bubble burst, we lost a good part of those savings anyhow. So we had few choices: bank the money and lose the tax savings and some inflation, or invest the money and lose 20% to the speculators. We could have bought a lot of toys with what evaporated last fall, or maybe should have stayed on the farm in the first place. Would never have to worry about money then.

  16. Leech thought nothing of tapping his line of credit for the $9,000 tuition. Nor did he fret much when he took out a mortgage of around $280,000 for a new home in Smiths Falls, Ont., or when he borrowed thousands to replace the family’s two aging vehicles. In all, the family piled on more than $400,000 in debt in the last few years.
    My, what a SUPERB poster boy for the need to shove the government vacuum cleaner hose into responsible Canadians’ pockets…

  17. I noticed something strange when I was applying for a business loan last year, but had a very hard time getting approved despite good credit. When the banks stop loaning, the U.S. economy stops too. I think most of the U.S. economy runs on credit. It seems like there’s more people who owe (in debt) than people who save. If living on credit is the everyday lifestyle, then once credit stops, the economy stops too.

  18. The guy makes 127,000 a year? He’s taking in probably about 6,500 a month~!

    I make 90K a year and I take in about 4,900 after taxes, etc. What did he do with the 127,000 a year? How long has he been making this salary?

    Why did he have to go and buy two new cars? Why didn’t he go and buy two “new” used cars?

    Why does he have to buy his kids new clothes EVERY month like one poster mentioned?

    Why must you eat out at all? Does he pack a lunch to work? Or does he spend about 400 or more a month on lunch with his co-workers?

    I have a co-worker who makes about 75K and his wife stays home with their 4 year old child. He rarely brings a lunch to work. If he ever gets laid off he’s toast. He spends at least $200 a month on lunch a month. $200 is enough for at least a week’s worth of groceries if you buy the good stuff.

    This guy in the article…how much did he save before he bought the house? Where is his savings? He should save at least %10-15 a month of his disposable income (AFTER taxes) in a savings account.

    Who says that we all have to put it into stocks? Come on! Don’t be fooled. If a person uses an RRSP – there aer GIC RRSP accounts! These are guaranteed by the govt and do not go down in value due to some stock!

  19. Danman,

    “Why did he have to go and buy two new cars? Why didn’t he go and buy two “new” used cars?

    Why does he have to buy his kids new clothes EVERY month like one poster mentioned?

    Why must you eat out at all? Does he pack a lunch to work? Or does he spend about 400 or more a month on lunch with his co-workers?”

    Just as VideoEscaper mentioned this entire Western Economy is Credit based. If he does not buy new cars or even a car the car part manufacturers and car makers can’t make a living and their employees get laid off and default mortgages, if he does not buy new clothes for his GROWING kids The Hudson Bay Company, GAP KIDS etc… will cry for bailout like car makers…mmmmm sounds familiar? Oh Now I think $400 a month on lunch will be excess unless you were to have a brew with your burger and fries…..however when everyone starts paper bagging to save then wait staff, kitchen staff, restaurent food suppliers etc….that waitress may have been ready to buy a IPOD or maybe join the gym but now her hours are cut, so she curbs her spending and a gym staff or a few people from Apple get a pink slip
    will be out of work and the credit cyclical driven economy continues to fail…..we are in serious times….

    PS….When the US Government forced the big corporations demanding bailout funds to cancel their corporate jet orders for 2009….a week later a kansas based jet manufacture laid of 700 workers and asked for a piece of the TARP pie….

  20. LIFE LESSONS people want more then they can afford, living on credit will bite you in the ASS sooner then you know. Make a budget and stick to it…. tough lesson to learn. Life and jobs have no guarantee of longevity, make today count and learn to “SAVE” for the economical hardship every family endures at some time.

  21. People being what they are, easy money in the form of excessive credit will be a constant menace. Despite the stories of frugality in these posts (all very encouraging) I do not foresee a golden age where people decide en mass – of their own free will – to reduce their reliance on credit.

    Oh sure, as long as the economy is struggling, they’ll be more careful (and so will their lenders). But when things pick up, as the memory of this recession fades, it will be back to normal. The only solution – and admittedly it’s not a complete solution – is monetary policy that is restrictive enough that it prevents lenders from aggressively marketing debt. That means higher interest rates and a “tight money” policy as a permanent fixture at the BoC. Keep rates high enough so that lenders can’t offer the teaser rates and other incentives they currently use to entice people into spending beyond their means. Keep them high enough so that automakers and electronics stores can’t offer zero down – zero interest deals. If the creditors can’t borrow money cheaply, they can’t lend it cheaply.

    Other than that, I don’t know. Maybe require a down payment on ALL credit spending. As in ALL OF IT – credit cards included. Perhaps forcing people to put a 10% or 20% security deposit down on all debt would make them think twice before borrowing. How often would we use our credit card to go on a vacation we can’t afford if we had to pay 20% up front? Transferring money from another card wouldn’t work either, because you’d have to give them a security deposit too. I don’t know if this would work, or if it would even be desirable. It’s just an idea I’m throwing out. But something must be done to lower our dependence on debt. Left to our own devices, human nature will ensure that many of us simply refuse to make the adjustment.

    We’re constantly regaled with tales from the old days (i.e. pre-1980s) when people would scrimp and save to purchase a used car, or for a down payment on a house. Yes, people were more frugal back then. They feared debt. But we’re rarely told why they feared debt. They feared debt because the lenders were absolutely merciless! If your debt got a little too high, you weren’t flooded with offers of new credit cards with low teaser rates for balance transfers. No, instead you were swamped with mail and phone calls from your bank demanding an immediate meeting “to discuss your current financial situation.” Living high on easy credit wasn’t possible, because there was no easy credit. Our mentality changed when easy credit became available. Not the other way around. It’s important to understand that relationship.

    • I agree with you that credit was too easy to obtain.

      I still vividly recall when a representative from my bank practically insisted on my taking a line of credit two years ago, while the bubble was still expanding. He suggested that I put the line of credit on my bank card so that I could access it from a banking machine, offered me cheques that I could write on the line of credit, and suggested ways that I could spend the money. All this despite the fact that I was only semi-employed at the time. (I took the line of credit, but didn’t use it.)

      And I too find some of the comments on this board troubling: some people are too quick to judge others too harshly. Given the choice between spending an evening with a self-righteous person and somebody who spends too much, I’d probably pick the latter – they’d be better company.

      • And I too find some of the comments on this board troubling: some people are too quick to judge others too harshly. Given the choice between spending an evening with a self-righteous person and somebody who spends too much, I’d probably pick the latter – they’d be better company.

        Heh. You got that right. Tight-wads can be a real drag.

        There is a balance to be had, and some people take the frugality thing to extremes. I’ve known people who made good incomes, refused to spend a dime on anything, yet they’d phone me to borrow stuff. Needless to say, I don’t associate with them anymore.

        In a way it’s poetic justice that this recession seems to have punished the big spenders and the tight-wads in equal measure. I think every workplace has a few people who wear ten-year-old clothes, ten dollar haircuts, and brag, “My wife/husband and I always max out our RRSPs. It just doesn’t make sense not to. You know, they say you should pay yourself first. Blah blah blah.” I’ve noticed those people have fallen strangely silent lately. :)

        I don’t think credit is evil. And I don’t think “consumerism” is evil either. We buy stuff to make our lives better or more enjoyable. A certain amount of credit expansion is desirable for economic growth. It’s just when credit expansion surges so far ahead of incomes growth for so many years, well, we end up in a massive economic slump like the one we’re in right now. There is a balance to be had – we just need a credit system that manages to herd most people into that balanced zone.

  22. Median family income in Canada is 70K.
    A family making 127K is in what? The top 10%?

    • Yet the writer of the article writes as if Marcus’ position is so typical, so average, and so middle class. I recently read the post of a recent college grad lamenting that he might face a starting income of 40-50k/year, and would probably never make over 100,000. That is absolutely related to this debt problem: we have all developed unrealistic expectations, and overspent trying to keep up with the Joneses.

      It is like everybody became nouveau riche. I went to school wearing clothes with patches in them, though my family was not poor at all. I guess one of the most important lessons I learned from my parents is that I don’t need to prove anything to anybody but myself. I wonder if the problem is that so many of the folks buying Mcmansions didn’t get the same lesson from their parents. If that is true, I really fear for today’s overindulged youth.

      • Epicurus: “Nothing is enough for a man for whom enough is too little.”

      • Yes, I do not think his income can be regarded as ‘normal’ – yet I am not surprised at his predicament, at least in terms of debt. I am surprised that he did not know how shaky Nortel was. I got myself into terrible debt problems for years – and not living high – a rented townhouse, a ten year old car – credit cards did it for me. Once I started using them for little things, the debt just seemed to grow and grow, until I had to use the cards to eat and pay bills – and the banks kept increasing my limit. I bought a house and worked several jobs to pay the mortgage and the credit card debts – but now after 16 years, I have paid off the house – got a line of credit to cover the credit cards (at less than a quarter the interest rate), and kept the cards, but had the credit limit cut to 1/3 of the former. My wife had to retire on a disability pension, and I was stupid enough to go for higher education when my employer vanished along with most of the manufacturing jobs in Hamilton back in the 1990s (note to Jack Layton – where were you when manufacturing was disappearing? Nothing like the cavalry riding in after the battle is over) – I discovered that a PhD in History equates to an income under 30k per year for 50% of graduates (or at least it was 50% before the recession). I teach part time (one of those sessionals who are hired on a course by course basis – not year to year as the lucky buggers at York are) and write books for my KD money. My house is 80 years old and small and in bad shape, my car is 16 years old, and I hope to keep it running for several more…. our last holiday was a busman’s holiday in 1995 ….. if we go out to dinner, it is usually lunch as that is cheaper …… but, oddly, I am far happier now than when we both worked – I am at least doing a job I enjoy, and even with the recession, my house is still worth more than my line of credit …. and there is always my daughter’s basement if things get worse. I think the world has changed utterly. I do not expect a return to the good old days of high debt, new houses, cars and a trip to the Dominican as a right.

  23. I don’t think feeling sorry is the point. The article is not meant to be a sob story. They deliberately chose someone who was doing quite well to highlight the debt wall that so many people – including well off people – are running into. This guy had an upper-middle class income, yet as soon as he lost his job, his debt closed in on him.

    Again, sympathy is not the point. Demonstrating the new economic realities is the point. A year or two ago, people like this guy and his family didn’t have a care in the world (indeed, that is where much of the problem lies). They borrowed against future earnings to buy large houses, cars, etc… Making the payments wasn’t a problem. Suddenly, it is the problem.

    • the problem is you can go only so far into the future to do it comfortably even if your job is guaranteed to be stable. now you have to add the risk of losing job factor and whether the person can easily get another job to replace income. why do you think ceo’s are paid huge salaries. only part of it is performance and their know how or skill. part is that once they are replaced for one or another reason it may take really long time to find something equivalent where they will having no income and spending their golden parachutes which are like severance but on bigger pay scale. the same as not everyone gets ceo salary.

  24. There are a lot of snarky comments on this post (ie. patchvonbraun) but that’s what happens when people talk money….
    I believe almost all debt is bad debt but as BCLaurie56 stated there is acceptable debt (mortgage and education). I’m happy to say that I have never had any debt, other than a mortgage. Both cars my husband and I bought (one new, one used) were paid with cash, credit cards are paid off monthy (i’m not giving my hard earned money in the form of interest to ANY bank!). My husband and I both work making 85K/year total, pay daycare for two small children, have a mortgage that is almost paid off (we live in the GTA), put money into our RRSPs and emergency/planned spending accounts monthy and have a few “toys” (big screen TV’s, IPOD etc.) . We have a great life. How did I get so lucky…its called budgeting and saying no sometimes. I have to thank my dad who grew up in post war Europe who taught me this and my favorite money lady who keeps me on track Gail Vaz-Oxlade (Til Debt Do Us Part)! http://www.gailvazoxlade.com

  25. I’ve enjoyed reading this series and the blog comments, but take issue with this statement: “but starting int he 1990’s our attitude to debt changed …debt emerged as the great enabler, the ticket to the trappings of a better life, to flat screen TV;s and shiny new SUV’s”.

    I work as a contract consultant, mostly fom home, since 2003 when I lost my job and returned to university to complete a degree that would qualify me for the work I do today. Contracts are renewed annualy, so I dont know what will happen in December, and in any event the organization can terminate with 30 days notice at any time. But I digress …

    A lot of things have changed since the 1990’s. I didn’t have a home computer – didn’t need one, nor a back-up laptop, nor anti-virus software or the need for upgrades and programs to do my job. Didn’t have a cell phone either. Didn’t need one. Today, technology – expensive technology – is a disposable income reality for every middle class wage earner.

    One thing that hasn’t changed much – middle income wages. I read not long ago that the average Canadian has not seen a raise (not a COLA increase, but an increase in salary based on performance and not tied to economic growth) in 30 years. Have your bill payments had similar limitations – groceries, telephone, tuition, etc? The increasing gap has been bridged in part by credit and by dipping into mortgage equity.

    Another sore point – the only tax deduction I have at my disposal is rrsp’s and I am forced to purchase stocks and mutual funds. I am not able to deduct one cent of the interest I am obliged to pay on the single biggest investment I will ever make and the cornerstone of my retirement package – my home. Had I been able to do so, the thousands of dollars I have begrudgingly invested in Manulife Financial, Great West Life, and other ‘blue chip’ stocks would have realized a lower principal today, instead of completely evaporating. Don’t get me wrong – when the U.S. economy started to tank back in 2006-2007, I did my due diligence. I asked my broker, I read the informed opinions from the senior economists at the Bank of Nova Scota and CIBC and finance ministers – ALL of whom said “don’t worry, our economy is safe and sound. What’s happening in the states won’t happen here”. Now those same economists are advising that the middle class need to keep spending to save the country from recession.

    The middle class are being shafted every which way. We’re slaves alright,. but not slaves to shiny new SUV’s and flat screen tv’s.

    • You’re not suggesting a mortgage tax deduction are you? That’s about the worst fiscal policy we could possibly consider. There were many reasons why the US housing bubble was so much worse than ours – but mortgage tax deductions were certainly one factor. And you are not forced to put RRSPs into mutual funds and stocks. You could have put every penny of them into GICs or bonds or T-bill funds if you wanted. Your return would not be great, but it’s better than suffering 40% draw-downs.

  26. Boomers will just have to keep working till they’re 70 or so. They won’t be able to help out the kids as much,but they’ll survive if they went to university. I say just get more education – go into medicine or law and you maybe get out of there with debt but at least with a career like that you’ll land a job that will pay you enough to thrive. It’s simple kids, medicine or law!

  27. Leany is absolutely right. For us, the only acceptable debt is mortgage. I came to Canada in 2002. One thing that my friends asked me was, “Have you applied for any credit cards?”, When I told them that I don’t want it as I don’t want to be buried in debt, they laughed at me. They said, I’ll be an outcast, I’ll not be a Canadian if I don’t have debt. Well, it’s a good thing that I didn’t listen to them. Right now, we have a mortgage, sadly, a week before our closing my husband has been laid off. He’s currently on EI and will be on EI until June. Once EI is over and if he will not be able to find a job soon, we will still be able to live comfortably for the next 2 years. It’s because we have saved for the rainy days…and budgeting is the key…..

    • We are a rare breed in this day and age……

  28. About Nortel:
    Exactly, how, prey tell, does one implement E-health, PharmaNet, Smart Grid, emotionless decision support of flood regulation dams along the Trent-Severn Waterway, Regional E-health data coordination centres, for Patient Bedside
    information systems, without: A) Nortel Magellan Passport Multi-media/multi-protocol bridging router, Nortel x.25
    leased-line BUS oriented access card, and Nortel Entrust VPN? SMC Barricade VPN router???
    Just curious, do all those leftists not remember how a nice mathematician, called Allan Turing, was hired, working
    at Bletchly Park, near Oxford, England, to provide useful services to prevent shipping losses in the Atlantic Ocean,
    as a result of the menace of Admiral Doentiz' submarine activity, in the mid-Atlantic. Methinks we need Nortel
    Entrust, AND Nortel Metro networks, ever heard of computer-monitored lean-drip irrigation, of switchgrass, wheat, and cotton, which needs RADARSAT Canada feeding info. to a centrallized satellite earth-station, in jecting signal into
    the Bell-Canada DSL/DECT network, OH, BY THE WAY, WE NEED TO deploy Nortel Digital subscriber line access node, on ALL Bell-Canada POTS/PSTN Centrex switches, those switches MUST support Transport layer-security/SSL3.0 interoperation

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