Tackling Household Debt: Winning the Battle for Our Wallets
August 16, 2013
Imagine that there are incredibly strong individuals up against you in an intense battle. They are working hard to exploit your weaknesses, building strategies to break you down, and doing everything in their power to beat you. And you don't even know you're in the battle.
Unfortunately, most Canadians find themselves in this position when it comes to the battle for their own wallets, and ultimately personal financial net worth is the battle ground that is won or lost.
The facts are hard to swallow on how we are doing in this battle.
Average consumer debt levels in Canada continue to increase at an alarming rate. We now have a higher per capita debt level than our American counterparts, savings levels are negative, and banks are continuing to create new ways to lend us money. The 'profitable target market' for lenders are customers who pay their minimum due payments on their credit cards and are employed.
That's it. That is why whenever we apply for a new credit card, we typically receive three new credit card offers in the mail within a month.
And what should we do about this increasing debt load? The first step is to recognize that, at some point, this debt will need to be paid off - personal bankruptcies and consumer proposals are no picnic. Spending less than we make is not something we're very good at, but the longer this is delayed the tougher it will be to repay.
It sounds easy, but we should do what we can to live below our means.
It's not easy because there are so many access points to money: both money that is ours (think cash, debit and cheques) and money that is not ours (think credit cards, lines of credit, mortgages, home equity lines of credit, family loans, car loans, etc.). In the 1950s Canada was a cash society - there were very few ways to borrow money, and no plastic at all. Now, the lines are so blurred it's hard to know when we're accessing our money vs. someone else's. Why? Because there is a lot of money to be made in the business of lending money and there are some creative, well-paid professionals who are compensated solely on increasing our debt loads. Everyone, including every single retailer, wants a piece of our wallet.
So if it comes down to taking personal responsibility, what should we do?
Try tracking every penny for a couple of months, just to see where it is going. It is more than likely that our collective values and goals aren't aligned very well with where our money is actually going. There may be disappointment among some today that there is no money left at the end of the month for retirement savings or children's education savings. Others would like to take a big anniversary trip or buy a small vacation property - there just isn't enough money to accomplish these goals after all the bills are paid.
To re-align your spending to better match a family's values and goals means facts need to be gathered, and tracking every penny is a good place to start. Once it is known where the money is going, decisions and trade-offs can be made to limit the spontaneous 'low value' purchases, like fast food, department store spending or coffee runs. And with the money saved, dollars can be re-directed to things that are more important to a family's long term goals. This is how dollars earned can be stretched - without earning more. Winning the battle for our wallet has more to do with defense than offense.
Money and debt can become emotional hot topics in the home, so tackling the entire category head-on is what a lot of couples are doing. And simple strategies like tracking every penny for a few months will not only help us answer some questions about where our money is going, but it could also help us sleep better, work more effectively, and even improve our relationships. Money isn't the most important thing in our life but it can create life flexibility, allow for generosity and give you financial peace when managed better.
You're not alone in this battle. If you choose to spend below your means, you will be joining a wave of York Region residents who are taking control of their financial futures. It may mean saying 'no' to a few things today, but if you do, you might be saying 'yes' to a lot more things later on. And I guarantee your future self will thank you.
Trevor Van Nest, B.Comm. (Hons.), FPSC® Registered Candidate, is Founder/Owner of York Region Money Coaches, an independent company that provides objective financial advice without selling any financial products. www.YorkRegionMoneyCoaches.com.