February 13, 2014

By Margaret H. Johnson

This is going to be a very interesting year, indeed. Only ten days in and we see a story about debt. That’s different.

The story ran in the Globe and Mail about Canada’s excessive debt and how that has made the rest of the world wary about our dollar, our plunging dollar. The article suggests that our dollar has dropped to the 90 cent US range because foreign investors believe our economy is fuelled by unsustainable run-up debt.

In some respects this kind of investor fallout could be blamed on the practice of lumping consumer debt together with mortgage debt. The two types of debt tell different stories.

Mortgage debt only reveals one side of the investment story. The article in the Globe and Mail did not add the equity side of the mortgage picture to the story. How much were all of these properties worth and presumably, there would be a surplus if they were all sold. That would theoretically negate the debt.

In fact the article in the Globe and Mail only talked about mortgage debt and real estate prices. Not a peep was mentioned about the consumer debt levels in Canada excluding mortgages.

Consumer debt has little to do with the real estate market and much more to do with household incomes and how middle and lower income families are handling inflationary costs, rising taxes and fees. Moreover, consumer debt is largely unsecured debt, such as credit card debt, and has no investment quality to it.

Of course economics is not an exact science. For me, I would like to change the title to Debt and the Dollar and say Canadians are in debt because they don’t have enough dollars.

Funny how, at the very same time, another article in the Globe and Mail draws attention to fewer Canadians contributing to RRSPs.  They cite a new survey by the Bank of Montreal where they report that only 43% of those polled intend to make a contribution to their RRSP by this year’s March 3rd deadline. The reasons for this drop in RRSP contributions are as follows:

37% said they were short of cash.

33% said other expenses took priority.

11% were giving priority other investments

Few very important details were provided regarding the incomes, family size, geographical regions, how many polled owned or did not own a home, how many carried consumer debt and those that were debt-free, how many were young families, and so on.

You see, in my business, the devil is always in the details. What is your net income? How much money is in your bank account? What are your assets all worth? How much is your rent or mortgage payment? Car payment? School expenses? Transportation costs, Food, entertainment expenses? Computer-cell phone charges?

In my business, every dollar matters. Maybe if public attention was tuned into why so many people need so much consumer credit then we could do something decisive about it.