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Bankruptcy and the need for more financial literacy.

by:
Laurie Campbell

For the scoop on personal bankruptcy in Canada, look no further than what the skilled trustees at Hoyes, Michalos & Associates (HMA) have found in a recent study. It offers ample proof that many Canadians – particularly men entering middle age - ought to take sound debt management, savings, and smart monthly budgeting increasingly to heart. After reviewing some 7,000 personal insolvency filings from 2011 and 2012, HMA was able to create a good portrait of the typical, bankrupt Canadian: Male, 43 years old, and with unsecured (or non-mortgage) debt of more than $61,000. But that’s just the beginning of the story. The study looked into average unsecured debt levels in groups involving Canadians from 18 to 60-plus years of age, with remarkable findings. What surprised me most was the average debt level applying to 50-to-59 year olds – it’s more than $84,000 dollars. Who knew that the generation which grew up with those Freedom-55 ads (touting early retirement through smart financial planning) would find itself in such a sorry fiscal state? For younger Canadians, it ought to be a sobering and cautionary tale. And speaking of younger Canadians, the HMA study determined average unsecured debt levels due to a lack of good debt management are as follows: 18 to 29 years - $32,686; 30 to 39 years - $50,351; 40 to 49 years - $67,180. Meanwhile – quite bruisedly – Canadians 60 years of age and older carry on average $68,776 in unsecured debt. All told, the study showed an average debt-to-income ratio of 215% among all age groups. Our hearts especially should go out to those who in the evenings of their lives are saddled with a lot of personal debt. As reported by Advisor.ca last week, “the average 50-to-59-year-old is working but is earning less than those aged 40-to-49. One in three of the older group still supports at least one dependant. If they own a home, they still have a substantial mortgage.” Doug Hoyes, from HMA, told Advisor.ca: “They (the older group) are squeezed from all sides. They are often supporting both older children and aging parents, as well as making debt payments. They may also be dealing with medical expenses for themselves or family members.” He added that, “they’re using credit to make ends meet.” It’s not hard to imagine how all the financial and personal burdens can easily combine to form a perfect storm for bankruptcy. Trustees at HMA said that, “Canadians are in denial about their overall debt load. [But] talking to a reputable professional is the first step in eliminating overwhelming debt problems.” All of us at Credit Canada Debt Solutions could not agree more. We make a point of showing troubled Canadians that there can be light at the end of the debt tunnel through debt management and financial literacy programs such as our Financial Coaching Series. But meanwhile, as Canadians, we might ask why and how our debt has gotten so far out of hand that our own Bank of Canada is raising red flags about the matter. Some answers are suggested through a recent public opinion survey commissioned by the Certified General Accountants Association of Canada (CGA), which examined the attitudes Canadians hold about wealth accumulation.     Here are a few of the troubling findings (taken selectively): • “The household savings rate plummeted from its peak of 19.9 per cent in the early 1980s to 3.8 per cent at the end of 2012. • “Over 70 per cent of households do not view wealth accumulation as very important. • “Canadian households are reluctant to engage in active savings, even when additional funds may be available. • “Even when additional funds are available, i.e. due to lower interest rates, Canadians seem to be more likely to use the funds for consumption rather than wealth accumulation. • “More than one quarter (29 per cent) of households report to have no wealth. Nearly two-thirds (62 per cent) of households with no wealth do not expect to improve their wealth situation in the next three years. • “The two most often-cited reasons for not being able to accumulate wealth are the current level of income and the need to honour other financial obligations. • “(Generally) Canadians are satisfied with how much wealth they have accumulated, but often are unaware of how much wealth they have. Little attention is paid to changes in the economic environment, which can affect household wealth.” I would say that the bottom line relating to all of the above simply is this: It’s time more Canadians improved their understanding of personal finance, and by that I mean all the ins and outs of credit, debt management, monthly budgeting, savings, investment, as well as financial planning for the long term. As a final thought here, I quote the 18th Century author and statesman Edmund Burke: "If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”

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