While I don't doubt that Canadian debt levels are unsustainable, note this finding is from an insolvency firm and IMO should be taken with a huge grain of salt. http://www.paulgraham.com/submarine.html
Indeed, MNP makes this proclamation about once per quarter. I don't doubt that Canadian consumer debt is at an all-time high, and I agree that's concerning.
However, MNP's survey methodology makes the 52% number misleading: they basically ask a sample of the population if a $200 increase in monthly spending would make them unable to pay bills and meet debt obligations, and people self-report if that is the case or not. Most people don't have firm monthly budgets, so this is probably more a psychological excercise than a personal finance one.
Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits.
A better, more informative metric would be to sit down with a representative sample of the population and analyze their monthly bills to find the gap between inflexible expenditures (eg: rent/mortage, debt service, utilities, basic internet + phone packages, reasonable food expenditures) and monthly income. Knowing what the statistics are for that number is a better proxy for how close Canadians are to insolvency than self-reporting. But that's an awful lot of work.
The latter methodology tends to produce laughably out of touch analysis. Mcdonalds and walmart both produced similar reports in order to demonstrate that you could in fact live on minimum wage in high cost areas without government subsidies.
Most healthy adults do not eat a diet of ramen as their mainstay. However an independent budget analysis would surely find that a healthy individual could downgrade their food purchases to just ramen (or another minimal cost set of foods) and find more give in the budget. As I recall the McDonalds budget also assumed the individual would not need phone or internet as they can use the library.
This quickly becomes an exercise in lifestyle dictation.
Well, yes, but you have to draw the line somewhere. A long-term diet of ramen is not healthy, but drawing up a reference basket of middle-of-the-road nutritious food and pricing it based on median market prices for statistical purposes isn't unreasonable.
And we can agree that assuming that somebody uses the library for the internet is unreasonable - a better baseline is a basic package for both at local market rates.
The goal is to assess reasonable flexibility in cashflow. If the study author is biased towards trying to prove a predetermined outcome (eg: that minimum wage in high CoL areas is livable), the results are poisoned from the get-go: good luck getting repeat business from McDonalds' if your study unearths some unpleasant truths. It's the classic case of a metric becoming a goal and ceasing to be useful as a metric.
I do think this is certainly something a national statistical agency could do in a minimally biased fashion, if done rigorously.
Then again, not having resources or entertainment while having a soul-crushing boring job is a massive mental health risk.
Ignoring that is of course a nasty bias. Much like ignoring that you do sometimes have to buy clothing or shoes, you probably do have to spend on something to unwind.
(What it is depends on the person.)
Likewise, ignoring cost of transportation is a chief sin of those analyses, even bus tickets are not free, and bicycles are not exactly fast.
The problem with average and basket goods for this problem is that it's difficult to assess whether someone is financially constrained when their circumstances push them beyond the average.
As a minimal example, calorie and nutrition demands can vary by about 2x with height and biological factors and easily up to 3-4x if you consider more active lifestyles. You would generally expect some portion of the population in the study to need double or even quadruple the grocery cost per household member than the average. Are they cost burdened if most of their budget goes to grocery?
Similarly housing is heavily biased by when you purchased property comparing someone renting market rate housing to someone who lives in rent control or has owned property for a while is challenging. You can't exclude owners as they are the most likely to bankrupt in this scenario if they become cost burdened.
Even worse, for both of the above baselines the cost of goods can easily vary by 4x depending on where you live within a 50 mile radius when it comes to dense population centers. Starbucks employees in SF proper aren't going to commute 4+ hours through bay traffic to live in lower cost regions of California. They will inherently need to purchase grocery, housing, and other goods at higher than average prices.
These edge cases matter in this analysis as the outliers are the ones who probably will go bankrupt or otherwise exit the economy if the economic environment turns profoundly negative. If by circumstance the average household is happy, but 10% of households are on the brink - it wouldn't take much for things to take a serious turn.
All that being said, there is no reason a government agency couldn't devise a methodology based on the 90th or 99th percentile to capture these edge cases and report on a number that would more reasonably reflect the long-term outlook of houses under financial stress.
* At minimum wage, it would require working 284 hours per month, or about 70 hours a week. To work merely 40 hours per week, they'd need to be earning $12.75.
* It assumes they can get health insurance for $20 a month, even though they're working two part-time jobs.
If you can cut your bills so you can pay them, you don't become insolvent, because you maintain a positive cash flow.
In contrast, if you cannot cut your costs anymore and your outgoings exceed your income, you will have a negative cash flow. You are still not insolvent, but you will eat into your savings and credit lines and eventually become insolvent if you cannot recover.
The question is whether the insolvency claim is valid. If an additional expense would require reshuffling your budget, but afterwards you can pay all your debt obligations, you are not insolvent.
I would also be "unable to pay bills" if I struggled to heat my 10,000 sq ft mansion in the winter, but there's no particular reason anyone should care.
> Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits.
Not specific to Canada but rather generic: it's virtually without alternative in most parts of the world to pay enormous percentages of a net income for fixed, unchangeable stuff:
- rent
- car-related payments (even a beater requires gas, insurance and maintenance) or public transport
- some form of internet access
- food
Most people (~70% in the US!) don't have the savings to weather an unexpected 1000$ bill so it's fair to assume they've already stretched their budgets thin. It is very, very hard to cut in the variable part of monthly costs then, and impossible to cut on the fixed costs. And the coronavirus crisis with its various impacts, especially destroying a lot of "side hustles" like restaurant or other service "moonlight" jobs or sex work, hasn't made things better.
In fact, most of the Western societies' masses are barely kept afloat. It is a ticking bomb waiting to explode, we're seeing violent outbursts for over two years now - Yellow Vests in France, the BLM protests and the January putsch attempt in the US, covid-deniers nearly storming the Parliament in Germany, escalating covid-denier and youth riots in the Netherlands, religious-nationalist riots in Northern Ireland... societies are under immense tension, with demagogues fanning the flames.
Housing prices and tuition have risen far faster than salaries in the last 20 years, meanwhile entry level jobs with possibility of advancement have dried up. Offering "financial literacy" as a solution in the current environment is like the "identity theft" scam, when people get the blame when a fraudster opened credit cards in their name. The system is not working any longer.
Instead of railing against policy that would help operating in a system because it's doesn't apply global changes, perhaps consider that the policy suggested still has demonstrable merit.
Don't I know it. Even now I can see a headline and know it will have a quote from the founder of the company I used to work for without even opening the article. Most likely the whole article was written by their PR firm, maybe with a couple of stats dragged out of the DB to add authenticity.
Welcome to neo-serfdom. You either own your home, are in a small group of new-money who can afford a home, or are on a never ending treadmill of saving in which house prices are increasing beyond any amount you can possibly save.
It should be possible for majorities to change housing policies and increase supply. Too bad we don't.
It's fine if housing is a significant asset, but we should treat it as a problem if people see it as an investment (the actual utility of most housing declines over time, maintenance and upkeep are required, value only goes up because of location and demand).
The trick is to somehow make the new supply appealing. I live in Edmonton, home of the urban sprawl, and while detached home prices climb, condo and apartment prices are much more stagnant. Sure we can do high density but when everyone wants a lawn it's hard to sell. I guess having no option is a way to do that, but the people I know who don't own homes are the ones who could afford a condo, but won't do it because a house is the dream.
Calgary is the home of the urban sprawl. Edmonton has a long way to go to get that ugly.
Edmonton saw a massive shortage in housing a few years back during the oil boom and moved to build tons of condos and apartments, plus offered tax subsidies if you converted a basement or in-law apartment into a full-on dwelling. So there is a glut of average-tier 2-bed 2-bath apartments everywhere.
Plenty of space and COL is reasonable if you're willing to go further out.
But, on average, still 100k (adjusting for currency) more than what my coworkers in the NC Research Triangle are paying for a similar square footage house.
I’m claiming there is a wide gap in desirability of various regions around the world, and there is a wide gap in wealth/income also. This dynamic will result in the situation where the most desirable places (such as CA) will have insatiable demand.
Creating enough housing supply to satisfy it, whether through higher density or sprawl, will make the place less desirable (have to share resources and amenities with more people), so residents will of course oppose it.
"A new survey by MNP Ltd. has found that 53 per cent of respondents said they are $200"
pretty sure the only number that is different from pre-pandemic statistics is $200, used to be $1000. People in Canada have really low net cashflows and believe in real estate as the only form of saving/investment. It is common for people to spend more than 50% of income on mortgages, even after government introduced benchmarking.
Thinking this way is not isolated to those locations. For example there has been a huge influx of people buying properties sight unseen and over-asking price in places like Nova Scotia.
It's still a dysfunction that's especially, uniquely acute in just a few geographic regions.
Speaking for all Canadians, as though a massive country of 30M people is a monolith, is ridiculous. Every time I see a comment like the OPs above, it's inevitable that a) they're from Toronto or Vancouver, and b) they think their experiences represent those of the entire country.
Obviously everyone has their preferences for where they want to live. But there's no part of the country I "dislike"--let alone "passionately" so--and I'd hope and expect the rest of my fellow Canadians to be similarly generous and open-minded about the rest of their country and their countrymen.
It's a shame you can't seem to find that in yourself, as every part of the country has something unique to offer, whether that's a small town in Saskatchewan or a massive suburb in Ontario.
While none of these numbers seem all that outlandish, having relied exclusively on savings for quite a while myself, it's worth noting that MNP is a huge staffing agency and it's not clear how their survey was conducted, so might as well ignore it entirely.
Clearly we're living in a difficult time, and the media is looking out for stories that "humanize" the difficulty. Inequality is a one of the challenges of our time.
But the problem is, the actual data is a bit mixed. One study says, "bankruptcies are down 27% in the past 12 months"[1].
Another report said that savings was at a modern "all time high".[2]
I remember reading stories about how personal debt had fallen the most in 2020, "a record" amount.[3]
Today I read that more money has been put into the stock market in the last 5 months as has in the last 12 years.[4]
Governments (in Canada) have been sending billions of dollars in direct payments to people who's income has been affected by the pandemic. The cost of direct pandemic support payments per capita in Canada works out to $10,000+.
Others have said that this article was written/sponsored by a bankruptcy firm. This same firm has published this same figure ("50% within $200 of bankruptcy") for years and years.
And so in 2021, this makes a good story. And people think it feels true. There is inequality. We see it. We feel it. But you can't measure it the way this study did (asking people) and I question the source of the data.
I work in the insolvency industry in Canada. MNP is a competitor to our firm. Every year they come up with a survey like this which sounds over-dramatic. The insolvencies in Canada are actually down 35% year over year. Most Canadians have been doing better since Covid because of the very generous Government we have and also because most creditors have halted collection procedures. Also, for people who own homes, the meteoric rise in prices has made it possible for them to refinance at sub-2% rates and pay off credit card debt.
Goes to show that even with the absurdly high taxation in Canada that some liberals in the US are trying to push for (as it if will result in some utopia) the problem persists. It's only if we start to recognize the true underlying problems that we will be able to have better societal support.
