September 25, 2014

A recent survey of thousands of employees in Canada published in the Vancouver Sun this week by the Canadian Payroll Association found that 51% of employees would find it difficult if their paycheque were delayed by a single week.

It’s always nice to have what some of us believe is the obvious confirmed by surveys and statistical research. Deeper and more scholarly analyses have affirmed the impoverishment of the middle class for years. The middle class, better known as middle income families, receive wages as their primary source of income and have been struggling to keep up with inflation and taxation throughout the 1980s, arriving in the 1990s with over $100 billion in consumer debt. This was up from $20 billion in 1975.

Roger Sauvé in February 2006 published a study entitled Can You Spare a Dime? Here he uncovered the somewhat shocking finding that, if you take out inflation, the typical worker in 2006 earned only 10 cents more per hour than they did in 1991.

In an updated report entitled The Current State of Family Finances (2008) Mr. Sauvé illustrated the current gap between the rich and poor in Canada. Accordingly, the richest one-fifth of the population accounted for 44% of the annual incomes and held 69% of the accumulated wealth. The middle fifth of households received 17% of the incomes and 8% of the wealth. The poorest fifth of households claimed a meagre 5% of the after income tax incomes, and possessed absolutely no wealth.

In the same study, Mr. Sauvé showed how household incomes were not keeping up with the accumulation of debt. Individuals and families have been spending more than they make. Much much more. Consumer spending increased at a triple pace of incomes. Debt had simultaneously risen seven times faster than incomes since 1990.

In other words, living from payday to payday and beyond has been going on for a long time in Canada for lower and middle income families. And, because the debt levels have consistently gone up each and every year since 1975, we can safely conclude that people cannot seem to make ends meet without borrowing more.

The current total consumer debt outstanding as reported by the Bank of Canada in September 2014 is $525 billion, up from $100 billion in 1990 and $168 billion in January 2000.

Middle and lower income families suffer many side effects of what could be described as impoverishment through debt accumulation. Anxiety levels obviously go way up in families when they are up to their assets in debt. They often separate and divorce. Consumer bankruptcies and consumer insolvencies go up. They have no money to save and cannot contribute to retirement savings plans in any meaningful or sustained way. And, there is certainly no way in the foreseeable future to pay off all of the debt.

So, the survey by the Canadian Payroll Association reinforces the sad truth that something is wrong out there and the trouble goes much deeper than just a survey. We are reminded about the burden of debt that has resulted from insufficient income for massive numbers of individuals and families.

I believe that a good starting point is to seriously address the ever-rising levels of consumer debt.