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Pique'n'yer interest

Debtor’s prison

According to the Certified General Accountants Association of Canada, Canadians now have the highest debt to income ratio out of 31 nations in the Organization for Economic Co-operation and Development. That list of nations includes Greece, a nation that mismanaged its economy so badly that the country is teetering on the edge of insolvency and threatening to bring down the entire European Union. Apparently we're even worse with our money.

Total household debt - mortgages, credit cards, loans, etc. - now totals $1.41 trillion, which is 144 per cent of our annual total household income. This number is up from $1.16 trillion in 2007, to the effect that the average Canadian is now $41,470 in the hole.

Two weeks ago I read that many homeowners could be in jeopardy of not being able to afford their mortgages if rates continue to increase. It's been estimated that as many as half a million homes would be in default if the base rate reached 5.75 per cent.

Then last week I read that the average home price in B.C. surged 17 per cent in the first four months of 2010 - and I wanted to tear my hair out. We all know those homes were overpriced to begin with, and yet people were rushing out to take advantage of low mortgage rates that are only going to rise again in a few years.

Why are Canadians taking on so much debt? And why are the banks and our government enabling our delusional lifestyles by allowing us to dig ourselves even deeper?

Meanwhile, our personal savings rates are generally in the low single digits in recent years, which means for every $100 we take in we're only saving a couple of bucks. With no savings to speak of most of us are matter of weeks or months away from broke if our incomes should disappear or get cut.

Personal spending is the biggest culprit and the rulebooks for that are being rewritten as we speak. Remember the old wisdom that housing costs should not account for more than 30 per cent of your after-tax income? Well that number has been revised by financial advisors to around 25 per cent as other costs are continuing to rise.

And yet a lot of us are probably spending 40 to 50 per cent of income on housing at a time when virtually all of our other expenses, from food to gas, are increasing faster than wages. Our spending habits are completely out of whack with our earnings and go well beyond the necessities of life - and I include those grey-area costs like cell phones and high-speed internet that have somehow snuck from the luxury column to the necessity column on the balance sheet, even though they represent an added cost to living that no previous generation has had to contend with.

But while personal spending is out of control our governments and Crown corporations are definitely not making it easy for us to balance our books. We've seen utilities, property taxes and home servicing costs increase well above the rate of inflation in recent years, and certainly well above the paltry one or two per cent that our wages increase annually (if they increase at all). This is nothing new, it's been well-documented that middle class wages have been losing ground since the 1980s.

Generationally, we're caught in the trough of a wave where the top of the wave represents the current cost of living and the bottom represents our salaries - trying to keep our heads above water is a constant battle. Too many of us are now under water financially, burdened by debts and minimum debt payments that are devised to keep us poor and paying interest for as along as possible. It's a kind of self-imposed debtor's prison.

There is more than enough blame to go around.

We can blame all levels of government for allowing the gap between the haves and have-nots to widen and the middle class to founder, and for themselves being too expensive for taxpayers.

I really don't mind paying taxes to better society but I do have an issue when a huge chunk of that money goes to pay public sector salaries that are now significantly higher than the private sector. This recent phenomena has been reported around the world, and Canada is no different - according to Statistics Canada wages increased by 33 to 54 per cent at all three levels of government from 1998 to 2008, while average private sector wages increased less than 10 per cent during the same period.

We can also blame globalism and so-called free trade for the loss of high paying jobs in a variety of industries, especially in manufacturing. One study I read suggests that one manufacturing job spins off up to 17 other jobs.

But most of all we should blame ourselves for continuing to play a game that we can't possibly win and clearly aren't enjoying. We need to make a greater effort to get out of debt and to be more realistic when it comes to making purchases and managing our money.

Banks should be more skeptical of our ability to borrow and pay back. Governments should be more involved and take a greater interest in our financial well-being.

The worst thing would be to continue to treat debt as a personal or individual problem rather than a systemic problem that is slowly but surely undermining the country. But right now our government and banks are more concerned with keeping us shopping than keeping us afloat.