Study shows Canadians are living with debt denial

Study shows Canadians are living with debt denial

December 11, 2014

Our changing attitudes towards personal debt are potentially more financially destructive than the debt itself.

New research could mean Canadians are more destined to fail financially. Manulife released information last week that should be a cause for concern.

People who owe money often do not think they are in debt. If the brain does not register the fact they have debt then how is it likely they will ever be motivated to pay off that debt.

This is not as much of an issue now but when these historically low interest rates creep up and approach more reasonable levels the carry costs brought on by higher interest rates will mean many will not be able to afford their debt payment obligations.

My opinion is high personal debt levels will be a major cause for financial hardship. The hardship will be felt by a large part of our population and will be significant enough to hurt the Canadian economy.

According to the research 27 per cent of Canadians consider themselves debt free even when they have a mortgage. Slightly less at 23 per cent considered themselves debt free when they have a car loan.

Finally, 11 per cent did not consider they had debt when they had borrowed on their line of credit. How is this possible?

During recent years our federal government have given many significant and clear warnings about the high personal debt levels of Canadians. There have also been strong warnings from the financial media.

It appears the negative government and media opinions on the evil of debt have caused a denial and now many people are living in a “debt free fantasy land”.

The research was done by the polling firm Research House for Manulife Bank of Canada. Over 2,300 homeowners between the ages of 20 to 59 with an annual income of at least $50,000 were questioned.

To summarize the research, one quarter of Canadians with debt do not actually think they owe money. The response was surprising because 83 per cent said that being debt free was very important in order to have a successful retirement.

Only about half thought they would achieve debt free status by retirement age. Those in their 40’s where more optimistic of being debt free than those in their 50’s.

At the same time, 10 per cent planned to borrow against their house during retirement.

At some point in the future there is going to be a financial collision between the reality of carrying too much personal debt and the elusive dream of a prosperous retirement.

I have said in the past that the legacy of the baby boom generation will be outliving their capital. Perhaps the publicity and impact of that will be what is needed to adjust the way we think about debt.

Canadians had a history of limiting their use of debt. We were much more conservative than Americans.

That has changed. Debt is acceptable. It is who we are.

Consumers used to save and then spend. Now they spend on credit and while they are meant to be paying off debt they consume more which just adds to the debt.

The house of cards will at some point come tumbling down. Debt is debt and eventually it has to be paid.

The Manulife research showing Canadians are living with debt denial is a valuable contribution towards realizing just how far

out of control our attitude has become to dangerously high levels of personal debt.

Watson Investments
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