With consumer debt at an all-time high across Canada, is it time to rein in our spending yet? According to the latest figures from the credit monitoring agency TransUnion Canada, Vancouverites carry the second-highest level of non-mortgage debt in the country, trailing only Calgary, which is in the throes of an oil recession. It has been hypothesized that Vancouver’s hot real estate market has fuelled consumer spending in Vancouver, making us more comfortable with taking on debt. However, real estate sales in Vancouver decreased significantly in August according to the figures released today by the Real Estate Board of Greater Vancouver.
As the old saying goes, “What goes up must come down”. And let’s remember that not all Vancouverites are benefitting from the current environment. The cost of rental housing skyrocketed along with property values and consumer insolvencies remain at pre-recession levels (there were 5025 consumer insolvencies filed by Vancouverites in 2015 versus 4,197 in 2008).
We would do well to take a lesson from our neighbours in Alberta. Before 2014, when oil prices went into free fall, Albertans were on top of the world. Albertans had the highest wages in the country and the oil patch drew workers from across Canada. But those high wages – which appeared to have no end - fuelled consumer spending, giving Albertans the highest debt levels in Canada since at least 2009 based on Statistics Canada’s publication “Household Debt in Canada”. Although consumer insolvency filings in Alberta were flat in 2014, it should come as no surprise that they jumped 18% in 2015. And, based on the latest Canadian insolvency statistics, consumer insolvencies in Alberta are up almost 37% over the same period last year – the highest jump in the country.
While there is no indication that Vancouver’s housing market is in free-fall (or that any other financial calamity is before us), the best time to prepare for a financial crisis is when you aren’t in the middle of one. This time last year the CBC published an article about the dramatic change in clientele and pawned goods in Calgary pawn shops. In the midst of a recession and job loss, financially unprepared individuals were forced to pawn their luxury goods for cents on the dollar. I am willing to bet every one of those individuals wished they had saved their hard-earned income - or paid down debt – instead of having spent their money on a bunch of stuff which, in the end, was virtually worthless.
I am not suggesting that Vancouverites need to stop spending money and put every last nickel in the bank. But I am suggesting – based on the simple fact that Vancouverites have higher consumer debt levels than most of the country – that those who are indebted should take a step back and evaluate where they are at now and where they will be if there is a significant shift in any part of our local economy.
Use this opportunity, while the going is good, to pay down consumer debt and set aside appropriate emergency savings. Having three to six months living expenses set aside is a good goal to set for your household. Create a comprehensive budget and a step-by-step plan to set yourself up for financial security well into the future should you find yourself in a financially vulnerable position.
If debt has become a problem for you, however, and one you cannot manage alone, speak with a Licensed Insolvency Trustee who can evaluate your situation, explain your options and (when possible) help you avoid bankruptcy. The simple fact is that that the sooner you take action, the more control you have of the outcome. And if the old saying, “What goes up must come down” is true, may you experience the down from a financially prepared position as opposed to a crisis from which you have great difficulty recovering.