Do better with debt in 2011

At the risk of saying I told you so…I told you so!

Last week, Statistics Canada made a frightening announcement. Canadian debt-to-income ratio hit a record 148.1%. This week the news was awash with headlines about just how much debt Canadians are in.

No, I take that back headlines about just how much debt we are in. Sometimes referring to us as a national whole can make the problem seem far removed and we shouldn’t. This is our problem! No matter how much debt we are in individually the balance sheets of our neighbours and our clients affect us all.

“Consumer debt has ballooned, testing the limits of many Canadians’ ability to repay what they owe. But everyone seems to think this is someone else’s problem to fix,” wrote the National Post’s Nicolas Van Praet.

“The Bank of Canada has kept borrowing rates low for longer than many economists had expected, offering a steady stream of fuel to the housing market and consumer spending. But in the process, Canadian debt levels have risen to troubling heights,” wrote The Globe & Mail’s Tara Perkins.

“There is absolutely no question that Canadian household balance sheets eerily resemble their U.S. counterparts of roughly three to four years ago,” David Rosenberg, chief economist at Gluskin Sheff & Associates told the National Post. “Who’s fault is it? It’s easy to point fingers at this politician or this central banker when we should probably all just grow up and behave like adults. It comes down to prudent decision making on the part of the lender and the borrower.”

This isn’t just about mortgages, although they are arguably the biggest part of the debt figures. According to TransUnion, on average we have a debt of $25,000 each, excluding mortgage loans. So our spending habits are clearly bleeding in to other forms of debt, which is really bad news. As those other types of debt tend to be the most expensive and often the items we purchase that way are either consumed or have rapidly declining values.

So what are we, the “financial advisors” of these households going to do about all this? For quite some time now, I have been prodding every advisor I can. Begging them, daring them and challenging them to do something. If we are to achieve what we want in our financial lives we must ensure our clients have a shot at achieving what they want in their lives. Debt and cash-flow are at the very foundation of all of our client’s goals and we’ve got start dealing with it.

This year, I’ve been all over this country telling every advisor or financial professional who would sit still long enough just how to take the first steps. It’s hard to put enough information in any one article to really get across exactly how to adapt your practice. So I’ll give you a little bit one article at a time. I don’t want to just get your attention, or drive internet traffic, I want to move you to make meaningful financial change for you and your clients.

I don’t want to be right half as badly as I want to see change, however, if you were to ask my husband he might tell you I REALLY do love to be right. So, I’m going to help you a little more every month over the coming year starting with an early Christmas present from me to you.

Rapidly following this face-stuffing stage of the year, we all tend to look to the future and resolve to be better than we were last year. I will challenge you once again. Resolve to do better with you and your client’s debts in 2011. I won’t be so cruel as to leave that resolution recommendation with ambiguous advice such as spend less and save more.

And I certainly won’t tell you that both you and your clients should already know exactly what to do with debt and credit unlike our finance minister Jim Flaherty who told reporters “Most of us learned that [how to use credit] when we were at our parents knees”.

These comments are not acceptable. I’m giving you all the gift of a place to start. Please visit my blog or simply click on this link to access my Cash-flow Track. The Cash-flow Track is a form I created to help me identify and more importantly help clients realize just how much debt and cash-flow management would affect their financial plan.

With my permission please take it add it to your process and listen carefully to what your clients have to say.Step-by-step, one foot in front of the other, is the only way to make the state of our clients’ finances and our country’s finances stronger.

As I see it, we’ve got two choices as advisors: be the solution or add to the problem.

To that end, I’ve adapted a Gandhi mantra for my own purposes. I work every day to “be the change I wish to see in the industry”.

I hope you can use my Christmas gift so you too can “be the change”!

Happy Holidays! Here’s to meaningful financial change in 2011!