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Canadian Household Debt Level Unsustainable

Canadian household debt levels are unsustainable. A recent Bank of Montreal report carried disturbing information about Canadian household debt levels. It stated that a small interest rate rise would shock 72% of homeowners. Seventy percent of the people surveyed can’t afford their homes.

Canadian household debt levels are unsustainable
Canadian household debt levels are unsustainable

Canadian Household Debt Level Unsustainable

Canadian household debt levels just keep going up. The federal finance minister and governor of Bank of Canada continue to plead with Canadians to stop taking on more debt. The reverse is happening. The latest Statistics Canada’s revision to 2011 household debt as a percentage of disposable income from 150.6% to 161.7% is just as troubling. Indeed, the current debt level of 163% of after tax income is around America’s pre-crash level. When our crash comes, as it must, Canadians can blame themselves alone.

I believe one money myth is a major household debt driver. Many folks believe if their rent is less than a potential mortgage they can afford to buy a home. Their friendly banker stokes this myth. These folks ignore the full cost of  owning a home. They forget interest rates are at all time lows.

While government has been warning Canadians to stop gathering debt, it has the solution. It can increase interest rates! To its credit, gradually, government has been tightening conditions for insured mortgages. And affected potential home buyers need to grow up and stop irresponsible borrowing. They know they can’t afford their homes, but greed, pride, and impatience propel them to irrational spending.

Still, it seems the government wants to eat its cake and still have it. Government knows an interest rate hike will slow the already sluggish economy, so it hesitates. Inaction is myopic because personal debt levels are too high. Which is worse? Wait until everything crumbles! What will happen when interest rates start  start to creep up? Will consumer appetite for debt change?

What can you do today if you are among the 72% with a mortgage you can’t afford? First, start a spending fast. Next, develop a sacrificial budget. If the sacrificial budget shows you’re unable to function at this adjusted lifestyle with your current mortgage, look at different housing options including selling your home.

Canadians household debt levels are too high. People will get hurt when rates start to rise. It’s important to understand that it’s acceptable to sell your home and rent, probably a more modest home. One reason you would wish to sell your house is the market is likely to be better today than later when more people in your situation might be forced to sell at the same time. Besides, generally, in our bubble conditions today, your options and timing might be better.

Finally, if you’re a Christian seek God’s direction before acting. You might find these five biblical stewardship verses helpful in your reflections with God.

Copyright © 2012, Michel A. Bell

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Michel A. Bell

Michel A. Bell is a former senior business executive, author of five books, speaker, and adjunct professor of business administration at Briercrest College and Seminary. He is founder and president of Managing God's Money, a private mission devoted to teaching biblical stewardship of time, talent, money and other resources. Visit Managing God's Money

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