Debt: Are we learning?

Everyone knows the importance of saving money for uninvited situations that may bring about large unexpected expenses. Although many of us know that life can surprise us for good and for bad, very few Canadian households are financially prepared.

According to TD Bank which just released its quarterly report, Canadian household debt has reached an alarming rate of more than 150% of disposable income! It has risen considerably in the past years along with government debt and GDP. (CBC news, September 18, 2012)

What possible reasons could there be for such a high imbalance? And what are the repercussions for Canadian households, small businesses and our overall economy?

This could be devastating for everyone especially if the US economy goes for another tumble and the European Union continues to flop. If people don't have extra credit available if the economy continues to deteriorate, the flow of capital will be hindered. When people aren't spending, businesses don't make money. When businesses don't make money they lay off employees which means even less capital moving around. It's a viscous cycle and everyone needs to be prepared for it one way or another.

The problem is that it comes down to consumption. We love the fruits of our labour a lot more than we should and don't recognize the direct damage of frivolous spending. It's why we put purchases on our credit card and "worry about it later". Most people are guilty of this from time to time, I know I am.

Maybe we can blame the banks a little for over-extending credit to the public or the media for promoting consumerism. But, we really need to blame ourselves and learn to live within our means. It's easy to get sucked in to the idea that having nice things and gadgets makes you a better person. It's depicted everywhere; in our music, movies, advertising, television, etc.

It's not just Canadian households either, our government has been consistently posting trade deficits. This is a direct result from importing more goods and commodities than the amount we export. The government is working on balancing this deficit but this will mean cutting back.

If we don't learn to adapt and manage our money better as individuals and as a nation, it could mean major cut backs in the future for some of our most cherished social programs such as: health care & education. We need to learn these lessons from our neighbour downstairs, the United States. They are currently treading on thin ice as a direct result of overindulging and overspending by their people and government.

So then... What's the solution?

It's simple, we need to live within our means but maybe that's easier said than done. Personally I believe  we need to set-up programs to further educate our public about the importance of financial planning.