What debt issue?

“There’s nobody here but us chickens with no debt issues” or at least that’s what Helmut Pastrick, chief economist of Central 1 Credit Union – the umbrella group for credit unions in British Columbia and Ontario – would have you believe.

“Household debt levels have been growing in Canada as well as most industrialized countries since the 1970s” said Pastrick in a recent interview, in which he questioned whether Canadian household debt levels were in the danger zone.

“It’s just a broader trend in the economy and society that we are more reliant on debt than before,” he noted.

Those comments nearly made my blood boil. Although he wasn’t all wrong, the entire interview was tantamount to a firm deposit of one’s head in to a massive pile of sand.

While I agree putting the brakes on home loans or access to home equity would be a mistake leaving most with far fewer and more expensive options, a job loss or sudden life transition could leave people no choice but to fail to make any additional repayment on debts or worse default. Then, Canadians could find themselves trapped with far too much higher interest debt.

I firmly believe we can’t deal with this mounting debt by locking Canadians in to a financial corner. If anything that will make things so much worse. If we continue to do nothing, “the powers that be” will feel they’ve no choice but to take away our borrowing power for what might seem like our own good.

Make no mistake my financial friends, there’s no need to panic. It won’t solve a thing. There is, however, a colossal need to PLAN. A gap big enough for Godzilla to stomp through exists in our planning process and the grey area between the independently wealthy and those on the brink of absolute poverty, is where many of our clients find themselves. Why does no one seem to think debt is an issue until it’s a problem?

Debt is a factor for the vast majority of Canadians and I promise for most of the advisors in this country it much more prevalent in our practices than we’d wish to know.

According to a recent report released by the Vanier Institute of the Family, at the end of 2010 the average household debt balance was $100,879. This takes us to a debt-to-income ratio of 150% and while mortgages account for two thirds of this debt, this means the other third is likely made up of higher interest loans. On average, over $33,000 is a given person’s debt on top of one’s mortgage, subtract out the Canadians with no debt and the average for those with debts rises. Canadians with mortgages also had a much higher average debt load of $171,500. Combine this with the continuous slide in household savings and we are headed to, at the very least, a “debt issue”.

Where I have a difference of opinion with so many of the supposed authorities is giving repetitive and frankly pointless statements like “reduce debt, save more and spend less” is ridiculous. This is supposed to pass for advice? We are not living in a post depression era where we just can pull the nails from old boards and straighten them for re-use or learn to bake cakes using no milk or eggs and all our problems will be solved!

It isn’t as simple as “spend less and save more”. Our clients are absolutely bombarded on daily if not hourly basis with all sorts of costs: as are we. Whether we need all of the items we purchase in a given week or not isn’t my point. Telling people they should buy this and they shouldn’t buy that is not the answer and neither is a condescending finger wave. Our clients need a new skill to deal with the new world of financial circumstances we all live in. They need ways to manage spending and saving behaviors so they can attain the results they are looking for. No one wants to be under water or overwhelmed by debt. I’ll agree many smart people do some dumb things with their money but a financial back-hand or public tongue lashing isn’t going to help.

Our clients need guidelines and parameters to work within in so they know how much they can safely spend not a tisk-tisk about what they woulda, shoulda , coulda done. People need help to see what they’ve got so they can make healthy financial decisions that don’t require they take all of the fun out of living while they are working at saving.

In order for our clients to gain this new advice and these new skills, we need to learn them first. There most certainly is something we the advisor can be doing about this. As long as we allow the debt issues to go on and fail to lend our collective voices to the glaringly obvious needs of so many of our clients -for skills to better manage debt and spending – no one wins.

Our clients will suffer. Our practices will suffer. Our country will suffer.

In the past year I’ve been seeing an overwhelming number of 60-year-olds with various forms of consumer debt like credit cards or store cards. These are people with good pensions, healthy incomes and significant invested assets but a wave of debt stands to wash it all away.

That ice berg is looming on the horizon and there is still something we can do about it. The only question we need ask ourselves is…”What am I going to do?”. I know my answer…..