4 Reasons Why Canadians Are Drowning in Debt

Welcome to my blog The Canadian Saver. This blog is all about personal finance. I have always been interested in personal finance and I am always trying to become more financially intelligent. Over the past few years I have gone over a few different scenarios about my finances and I wanted to share those tricks and tips with my fellow Canadians.

In this blog, we will discuss how to get out of debt, how to save money, how to make money how to be financially free (whatever your definition of being financially free means). So if you’re interested in that type of content, please make sure to subscribe to our mailing list and follow us on Pinterest and Youtube.

Today’s blog post is about debt and why so many Canadians are drowning and struggling financially. According to an article from The Globe and Mail the household debt load was 176.3% for the end of a 2019. This means that for every after-tax income Canadians earn the average Canadian owes $1.76. Now, according to this recent article from Global News, the Canadian debt Rose to 176.9%.  This article is dated June 2020. Which is understandable because of the current pandemic situation that we are in.

why are Canadians in so much in debt in the first place?

1. Lack of Education

The short answer and the first reason is lack of Education about money. If we want people to be able to be good with money management we need to show them how.  I mean think about it! This is not something that is taught in school. Why? I don’t know. But the bottom line is that people need to learn how to deal with money. Money is a great thing but we have allowed it to be our master. It has become this sort of thing that we love to hate for people who don’t know how to deal with it.

Most people go to school learn about all other different things and not money management. And then, graduate to go to the university or College without having any knowledge of what to do with better managing their finances. This is the age that a lot of us have been introduced to credit cards.

At first this sounds like a great idea. Being able to buy things you can’t afford now and delay the payments to when you receive your future paycheck. We are fed this notion that we need to get a credit card to build our credit. Don’t get me wrong I am not saying that that’s not the case. We do need to get credit to build our credit history.

However this ends up backfiring on us. Because when you don’t use your credit cards or line of credits or any other sort of credit the right way you end up messing up your credit history even worse. So, yes getting a credit card or a loan is great if you know how to use it. However, most people don’t. As soon as they get a credit card, they start spending mindlessly as if it’s just money from the cloud. Until they Start getting calls from creditors.

2. Keeping up with the Joneses

The second reason why Canadians are in so much debt is because of the phrase keeping up with the Joneses. If you’ve never heard  this phrase before here is what it means. According to Wikipedia keeping up with the Joneses is an idiom in many parts of the English-speaking World referring to the comparison to one’s neighbor as a benchmark for social class or the accumulation of material Goods.

Apparently, the phrase originates from the comic strip keeping up with the Joneses created in 1913. Essentially, what this means is our incessant need to have the latest gadgets, the latest furniture, the latest everything. And sometimes this is for the purpose of trying to impress people we don’t even like.

This brings me to the third reason why canadians are in debt.

3. Priorities are not in the right order

There is a serious issue if you use your paycheck to buy things that you can’t afford when you know that you are behind rent.  And then when rent is due, you have no other option but to put it on credit. So really, we shouldn’t be buying things we can’t afford.  

4. The use of credit to supplement income

The fourth reason why people are in so much debt is because some people use their credit cards to supplement income. The reason for this can be because they have either lost their job or the money that’s coming in is not sufficient to live on. Don’t get me wrong, I definitely understand this situation as I have been in it myself.

This is actually more frequent in 2020 in light of the current situation that we are in. A lot of people have lost their job and did not have any emergency funds setup. Therefore, no savings to live on until they got back on their feet. If there is anything this current pandemic situation has taught us it’s that life can be so unexpected and that things can change in a heartbeat.  This is why it’s a very important to be prepared financially by having a savings account and by saving for emergencies. Aim to have between 3 to 6 months of living expenses in a readily accessible savings account in case of an emergency.

Bottom line

We need to make sure we have enough money coming from our paycheck to purchase what we want. It’s great and all to ask for credit to build your credit history but you need to learn to do it right. Credit cards can be a great thing when they are used correctly. So make sure you learn to use it to your advantage. If you know that you can’t use credit responsibly, try to stay away from it and only spend money that you have already earned.