This weekend, The Globe and Mail published an excellent package on personal debt in Canada. The centerpiece, Canada’s brewing debt storm, reported that we owe an unprecedented $1.47 for every dollar of disposable income we have. I have been making more than my usual share of contributions to Canada’s economic recovery in the last month or so, and was feeling a bit guilty before I saw the piece. It didn’t help.
Spending significant sums of money has made me uneasy my entire adult life. That has largely to do with the fact that I was raised in a frugal household. But there’s more to it. Like a lot of people, I experienced poverty in my 20s. I was never poor enough that I missed a meal, but there were a couple of times I considered it a realistic possibility.
I remember one day vividly. I had $10 in my pocket. I’d paid my rent for the month, and there was a bit of food in the fridge. But that $10-bill was all I had to my name. Replacing the empty can of shaving cream in my medicine cabinet represented a major budgeting decision.
I’d accepted an invitation to visit my aunt and uncle that afternoon, and I was grateful for the free meal. After dinner, a young cousin asked me if I’d buy a lottery ticket from him in support of his hockey team. Five dollars for one, $10 for three. I hesitated, but felt I couldn’t say no. “I’ll buy a ticket,” I said. Either he misheard me, or he went for the hard-sell. He took my $10-bill, and handed me three tickets.
If ever there was a raffle I deserved to win, it was that one. (I didn’t.)
In my case, money got tight for four reasons:
- A couple of years previously, I’d left a decent entry-level job to launch a magazine with a former boss. About five minutes after we opened our doors, the recession of the early 1990s hit. It was brutal for us.
- I was living alone. Having an apartment to myself was one of the best things I ever did, but it came at a cost. It’s expensive to live on your own. In retrospect, I should have taken advantage of the opportunity I had to move back in with my father.
- I bought a car I couldn’t afford. It wasn’t a BMW or anything. In fact, it was a used SUV with too many kilometers on it. It came with an affordable ticket price and a list of problems that made me the local mechanic’s favourite customer. It took me years to pay off that credit card balance.
- I didn’t take control of my finances. I hadn’t been taught and I didn’t feel capable. The truth is I ducked the whole thing. I believed that if I worked hard, the money would take care of itself.
The biggest lesson I learned from the whole experience is that poverty can happen to anyone. It creeps up on you. A bad decision here, a bit of bad luck there. Suddenly you’re in a spot.
Personal debt is a fact of life. It doesn’t need to be, but credit is available to us, often inexpensively. The challenge is to make your borrowing decisions based on what you can afford to pay long-term, regardless of the short-term carrying costs. It has been widely reported that the Bank of Canada is planning to begin increasing its overnight rate in the second half of this year. That rate is at just 0.25% today, a historic low. It won’t stay there, and as it rises other rates of interest you pay will be affected. Be prepared.
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