# Action Canada Task Force on Canadian Household Debt



## briant (Jun 23, 2009)

Action Canada has released a report on Canadian household debt
http://www.debtcrunch.ca/wp-content/uploads/2010/10/FINAL-ENGLISH.pdf


Here are some interesting findings:
"In 2010, 59% of Canadians indicated they would have difficulty making financial ends meet if their paycheque was delayed by only a week. In fact, 1 in 10 state they could not handle an unexpected expense of $500."

"According to a stress test scenario by the Bank of Canada, it would take only a 0.5% increase in interest rates for 1.1 million Canadian households to become at risk of defaulting on their consumer credit or mortgage-related debt."

"While Canadians are enjoying accessible credit at historically-low interest rates, many are living paycheque to paycheque, with significant amounts of their disposable income going to servicing their personal debts. With interest rates expected to rise, Canadian households that have taken on too much debt face a real financial risk. Vulnerability at the household level could easily translate into a larger risk for the economy as a whole."


Here are their recommendations:
1. Loan Products Should Match the Borrower’s Repayment Plans
2. Minimum Standards for Mortgage Qualification Should be Increased
3. Higher Repayment Amounts Should Be the Default Option
4. Loan Amounts Should Be Offered Based on Need, Not Affordability
5. Financial Awareness Should Be Included in Corporate Social Responsibility Policies of Financial Institutions
6. Increase Public Engagement through a National Public Awareness Campaign
7. Promote Self-Monitoring Options


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## briant (Jun 23, 2009)

Here is an excellent analysis and response to this report from a Canadian professor and financial adviser. 

http://financialinsights.wordpress....ok-at-canadas-record-level-of-household-debt/


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## Four Pillars (Apr 5, 2009)

briant said:


> ...
> 
> Here are some interesting findings:
> 
> "In 2010, 59% of Canadians indicated they would have difficulty making financial ends meet if their paycheque was delayed by only a week.


I think we discussed that "survey" in here when it was first released. It's meaningless - the question is just too vague.


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## briant (Jun 23, 2009)

Four Pillars said:


> I think we discussed that "survey" in here when it was first released.


I didn't see a post about it and a search for "action canada" and "debt crunch" found nothing.


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## the-royal-mail (Dec 11, 2009)

I don't remember discussing this earlier, but if we did, how can that old thread be revived? I assume there was a lot of discussion here at the time?

Anyway, it is scary to read that people can't even handle a $500 shortfall. I try and keep between $1000-2000 minimum in my POSA at all times, to be ready for such situations. They crop up all the time. Secondly, a one-week delay in your paycheque is the perfect example of the kinds of problems we should all plan for.

Anyway, stats in general are meaningless as they can be given in a way that suits the presenter no matter the bias.


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## Four Pillars (Apr 5, 2009)

The original survey was from September of last year

http://www.theglobeandmail.com/report-on-business/economy/six-in-10-live-pay-to-pay/article1705096/

I thought it was discussed in here, but I could be wrong (it does happen).


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## OhGreatGuru (May 24, 2009)

briant said:


> Here is an excellent analysis and response to this report from a Canadian professor and financial adviser.
> 
> http://financialinsights.wordpress....ok-at-canadas-record-level-of-household-debt/


It's not so much analysis as recommendations regarding what to do about it.

I'm still waiting for Stats Canada to publish a complete report on this. All the data on their site is still from 1999 and 2005. I believe the complete report used to come out in something called the "Survey of Financial Security." All the articles written last year seem to be using some preliminary information release. But the various commentaries have little information on the breakdown in the types of debt, which the complete report should have. 

For example, if most of the increase is in principle residence mortgages, one could argue that is "good debt" because it is asset-backed, and is a simple (albeit unfortunate) reflection of the rising cost of housing in some of our major cities. 

But if it's mostly consumer debt that's a more serious concern. And the solutions will vary depending on where the debt lies.


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## Dana (Nov 17, 2009)

briant said:


> Here are their recommendations:
> 1. Loan Products Should Match the Borrower’s Repayment Plans
> 2. Minimum Standards for Mortgage Qualification Should be Increased
> 3. Higher Repayment Amounts Should Be the Default Option
> ...


Regarding recommendation #1, with the exception of mortgages borrowers already have the option to implement their own repayment plans as most consumer debt is 'open' debt and can repaid in part or in full at any time.

I agree with recommendation #2 - when did home ownership become a right? There seems to be an attitude of entitlement around home ownership IMO. 

Regarding #'s 3-5, I can't see lenders adopting these policies as it will impact their profitability and banks are the first ones to admit that they are in business to make money for their shareholders. There is an inherent conflict of interest there. Like if I go to McDonald's and upsize my combo, it should not be their responsibility to advise me of the extra sodium, fat etc. that I will be eating and suggest that I stick with a small meal. 

It's frustrating to me that so many people can't regulate their own behaviour resulting in large amounts of taxpayer money being spent on studies and committees to come up with recommendations to protect people from their own lack of common sense.


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## HaroldCrump (Jun 10, 2009)

OhGreatGuru said:


> For example, if most of the increase is in principle residence mortgages, one could argue that is "good debt" because it is asset-backed


That is usually the BS used by the RE industry and its cohorts to get people to take on more and more mortgage debt by buying bigger/fancier houses.
As mortgage payments (and other rising home ownership costs such as property taxes, hydro etc.) increase as a % of disposable income, the less and less people have to spend on really important things, such as savings, retirement, education, well-being, travel, rest & relaxation, etc.

If we assume that the average amortization period is 35 years, it means that most folks will be sacrificing all the above mentioned aspects of their life for _35 years_ in order to afford housing.

If someone is lucky to pay off their mortgage after say 30 years, chances are they are about 55 - 60 years old by then.
Such a large portion of their life (some may say the best years) have gone with the wind.


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## sags (May 15, 2010)

I find any reports from the credit reporting businesses, the most interesting because they are in the front lines and see exactly where people are financially, without relying on honest answers in a poll or survey.

One recent report, by TransUnion I believe, pointed out some disturbing trends.

One of them was that the "average" credit card bill they have on record has a balance of 3,000. The "average" line of credit balance is over 30,000.

They found that a large proportion of people rack up their credit cards to their limits and then transfer the debt to their line of credit. They use the credit card again and the cycle continues.

They didn't discuss mortgages, but it wouldn't be a stretch to think that people can't pay off 30,000 in debt from their income, especially if they are using credit cards already to supplement their income, so the plan is to refinance their mortgage at a future date to pay off the credit line.

A lot of people are floating around on a sea of debt, hoping a big wave doesn't come by and knock them out of the boat.


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## hboy43 (May 10, 2009)

Hi:

Perhaps these people are perfectly rational. With government spending ever headed higher, eventually taxes have to follow. Why have a pool of capital that the government could take at any time? Better to be on then receiving end of the tax and spend cycle. Live to the max, and if you lose your job, no problem, the government will give you cash.

In the long run, there is no point in being personally financially responsible, when the civilization you live in isn't. Sooner or later the society has to fail, and when it does, those with capital are looted.

Here is a prediction for you. In order to fund the boomers and their ill health in their senior years, taxation policy will evolve from taxing income, to taxing capital. Otherwise we will have to reach a point where income tax is so high that people will rationally have to decline to work, or go underground. It will be easier to take the wealth of the few prudent (or foolish) who looked after themselves and have a net worth. Probably a VAT will be how this will look. It is more subtle, but in the end a very close approximation on taxing capital, without quite the same level of political problems. You can keep your money as long as you don't spend any of it, then we want 25%. VAT rebates for those of low income. 

Or maybe pension rules will be changed by fiat, say you wake up one day and the retirement age is now 70. Tantamount to a tax on retirement capital.

I somewhat live this philosophy. While I have a large pool of capital, it was generated over 30 years, long before I realized the truth of civilizations. I certainly don't personally work for money any more. It is one thing to have the government take investment returns, easy come , easy go. I draw the line at working for my money though. Then I am taking real hours of my life, converting them to cash, giving half of it to government to piss away. I am like Switzerland, neutral. I neither pay much tax, nor do I do much sucking at the government teat.

You can either have a ruthless society that survives, let a few stupid people go broke, starve, get lost in the woods, or whatever. Or have one in which everyone gets a free pass from personal responsibility, but in which the society eventually falls. Can't in the long run have a society that both survives and rewards stupidity. Stupidity eventually overruns the productive and responsible. 

Surely a fundamental lesson of history is that civilizations always fail. It is foolish to think that this one will be any different.

So who is really the stupid one here? Those who spend all they have now, or those like me who save, and eventually lose it all when society crumbles? Time will tell.

hboy43


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## andrewf (Mar 1, 2010)

Sorry. A VAT is nothing at all like taxing capital. VAT is a consumption tax. It taxes consumption. If you invest/save, you don't pay VAT.

Yikes.


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## sags (May 15, 2010)

It will come down to priorities in the future. 

I was looking at the bill on a takeout food order the other day.

The food total came to 60 something dollars. The tax was over 10.00.

I remarked to the waitress that the government made more than I did for delivering the food, more than the waitress did for ordering and bagging up the food, and probably more than the restaurant did for making the food.

Now, consider every fast food restaurant, every variety store transaction, every transaction anywhere in Canada........all within that same time frame, and one has to wonder where all the money is going.

Add on all the other taxes, hidden and otherwise, and hokey doodle........

We need some accountants with sharp pencils to go over the budget and start whacking expenses. 

If we can't afford to pay something back to all of us after working and contributing for 40 plus years, something is seriously wrong with the status quo.


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## the-royal-mail (Dec 11, 2009)

I completely agree sags.

The problem is that nobody wants to give anything up. There are many pigs at the trough in this country and all of them will cry foul and say to "cut somewhere else" if you try to reduce their funding. Many of them will run to human rights too. It will be a mess.


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## andrewf (Mar 1, 2010)

The GST collects a fair bit of revenue. The government wastes money. Welcome ladies and gentlemen to another episode of adventures in applied orthogonality.


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## Brian Weatherdon CFP (Jan 18, 2011)

HBOY43 sounds uncomfortably cynical (ok some would call it simply honest) but don't miss his point on future taxes increasing. That's pretty much a given. 

So the more we reduce unprofitable debt, and the more we collect our wealth in areas that are less taxable, the more secure we can be. 

That's something we can share with anyone willing to listen.

BW


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## LondonHomes (Dec 29, 2010)

andrewf said:


> The GST collects a fair bit of revenue. The government wastes money. Welcome ladies and gentlemen to another episode of adventures in applied orthogonality.


Effective taxation is a rather dry topic and I doubt most people have any interest in studying or learning about. However if you did you would learn that VAT taxes like the GST & HST are they best sort of taxes for the economy. (Hence the HST in Ontario where it's introduction was combined with a reduction in income taxes rates.)



sags said:


> We need some accountants with sharp pencils to go over the budget and start whacking expenses.


The Federal & Provincial governments have been trying to "whack" expenses now for at least 15 years now. Do not kid yourself into thinking that there is a lot of pork left to cut.

As a % of the total budget there is not much waste in Canadian government spending. Sure there will always be those headline grabbing stories, but a certain % of waste is common in all large organization and all governments through out history. Look at the waste in the places you work or are involved with, do not expect the government to be any different.

If you want lower taxes then demand that the government cut certain specific services. Since the only way to lower taxes is for the government to cut it's spending.

The problem of course is that your wasteful government program is my essential government service.


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## HaroldCrump (Jun 10, 2009)

LondonHomes said:


> If you want lower taxes then demand that the government cut certain specific services. Since the only way to lower taxes is for the government to cut it's spending.
> 
> The problem of course is that your wasteful government program is my essential government service.


Yeah, like the recent Toronto Housing Board's expense accounts.
http://www.theglobeandmail.com/news...ditor-finds-misspending/article1923790/page2/

Of course it's an essential govt. program.

Or the eHealth project - isn't that essential too.

The wastes in private sector are miniscule compared to what goes on in the public sector.


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## LondonHomes (Dec 29, 2010)

HaroldCrump said:


> Of course it's an essential govt. program.
> 
> Or the eHealth project - isn't that essential too.


No those are headline grabbing stories that account for a very small portion of the overall spend.



HaroldCrump said:


> The wastes in private sector are miniscule compared to what goes on in the public sector.


It is the size and the microscope that the public sector is under that makes it seem more wasteful.

Meaningful tax reduction will only occur when people demand a reduction in specific government services.


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## HaroldCrump (Jun 10, 2009)

LondonHomes said:


> No those are headline grabbing stories that account for a very small portion of the overall spend.


Several million dollars is not "small" by any measure.
It could have gone towards improving the conditions of the tenants rather substantially.
The early guesses are that in addition to the above, about $40 - $50M were lost in the stock market investments by the board.
That brings to total close to $100M - I'm sorry, that's not a "small portion".

The eHealth was a rounded $1B.

There are at least 3 to 4 such "headline grabbing stories" each year - just in our local region.
Aggregate that across the country.
Assume only 25% of the public sector scams get unearthed each year.

The amounts begin to take on staggering proportions.



> It is the size and the microscope that the public sector is under


You find that wrong, why?
It is tax payer's money - money people have worked hard to earn.
Most of which has been appropriated from them.
With the promise of providing goods and services and for "taking care of society".
I'd counter that the public sector is nowhere near the microscopic scrutiny they need to be under.


> Meaningful tax reduction will only occur when people demand a reduction in specific government services.


No, that is what they want you to believe.
The various levels of govt. cut services but keep their own comfort and excesses intact.
We should start by reducing the excesses, then the services.
Tell me : during all this recession and the mess that's been happening since (say) 2008, exactly what has the provincial or federal govt. done towards cutting spending, other than reducing services?
Have they frozen salaries?
Have they reduced hiring?
Have they trimmed expense accounts?
Have they given up even the slightest bit of comfort (like chartered jets) to cut expenses?

Most private sector companies (at least the majority of small and medium scale companies) have done all of the above, and more.
Is it too much to expect our public sector leaders to do that?


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## LondonHomes (Dec 29, 2010)

HaroldCrump said:


> That brings to total close to $100M - I'm sorry, that's not a "small portion".
> 
> The eHealth was a rounded $1B.
> 
> ...


The 1 billion on e-health was spent over a course of 3 to 4 years, I assume the 0.1 billion in the Toronto issue was also spent over a number of years. So there is no need to increase these numbers to reflect the assumption that only 25% of public sector issues get uncovered each year.

1.1 Billion out of a total Ontario budget spend of 125 Billion = 0.88% waste. 

Or a tax reduction to the 13.2 million people in Ontario of $83.33 / year.

Once again not a meaningful tax reduction.

Do not get me wrong, I am annoyed at the next guy when examples of govenment employees taking advantage of the system are uncovered. I just find that it is unreasonable to think that it only happens in government organizations or that you could ever eliminate it. Even if you could eliminate all waste it still would not result in meaningful tax reduction.

And yes, instead of cutting government services you could reduce the pay and benefits to government employees. But I don't hear the public demanding that either.


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## the-royal-mail (Dec 11, 2009)

Interesting discussion. 

Cutting back on the gov't employees is an idea fraught with peril. Look at what happened in France and elsewhere in Europe when the gov't tried to balance their books on gov't workers.

I realize gov't workers are an easy target. I would just suggest caution here, as many of them (I mean the little worker bees at the bottom here) work quite hard, which is more they can say for the downtown panhandlers and beggers who await them outside the bldg at the end of the day. At least the gov't workers...work, are productive citizens who use their earnings to buy things like cars, houses, babies, consumer junk and the like.


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## HaroldCrump (Jun 10, 2009)

What is happening in France and the PIIGS countries is different, hopefully.
That is a case of a heavily public sector based economy that's become addicted to its comfort and entitlements.
While the going was good, the stock markets were up and all asset values were appreciating, then it was fine and dandy.
But when the bottom fell out, and the govt. needed to tighten the belt, the unioned workers refused to cooperate.
Like spoilt children, they are throwing a fit.
Witness the strikes, demonstrations, the pillaging, the rioting.

When everything else around is crashing and burning, it is not rational to expect one section of the population to continue receiving its comforts and entitlements.
What they are essentially doing is bankrupting their future, and their childrens' futures.

It is not about whether your average public sector worker is a hard working, conscientious soul or not - they are (most are), no one is denying that.
But as administrators of the national and state budgets, the purse keepers have a duty and responsibility to tighten the belts.
It is simply a rational and logical choice.


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## Ben (Apr 3, 2009)

Back to the original thread topic. Haven't read the whole report, just pieces. I am as uncomfortable as the authors with Canadian household debt. Not sure how effective awareness campaigns or budgeting calculators will be. 

Seriously question the economic know-how of the authors though. Action Canada seems to be just a bit of a science fair project for promising young Canadians. One author recently received Ph.D in neuroscience, now he's writing reports on household debt. Others with equally non-parallel backgrounds. Bit of a stretch to attach any real meaning to this report.


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