Shop till you drop--into bankruptcy court

What do monster homes, SUVs, and Caribbean resorts have in common? For far too many Canadians they mean debt--big time. In The National Post financial section (Sat.24), Jonathan Chevreau warns that Canadians and Americans are living in a fool's paradise of low interest rates. In fact, the interest rates have been kept artificially low by the Federal Banks to stimulate commerce. They don't even meet the yearly inflation rates. Cars are flying off the lots with zero per cent financing. while mortgages are at historic lows. A generation, which has never been taught that what goes down must come up, are bingeing on items they don't need, and won't be able to finance when rates go up--as is on the horizon. Chevreau maintains that rather than pile on more debt, now is the time to start paying it down. Unfortunately, a generation that wants it all and wants it now is not listening. The credit card companies are partially to blame. It always astonishes me to see huge posters in universities -- posters offering credit cards to students who are already in hock for their education. Besides which, there is no guarantee that they will ever find lucrative employment in their fields, for example, computer grads. Another sucker element are the businesses that offer easy credit, but with punishing interest rates for late payment.

Chevreau presents some troubling statistics. 185 million Americans have credit cards and the average debt on them is $8,400. Canadians are no better, he says, "as they owe $458 billion in debt, or almost $15,000 for each man, woman, and child in this country." He quotes Stanley Kershman, author of Put your Debt on a Diet, who claims "most Canadians are only two pay cheques away from bankruptcy." The idea that a young couple at entry level salaries can afford a new home, two cars, and stays in $220 a night hotels is fallacious thinking. After daily living expenses, taxes, and various skyrocketing insurances are paid out, most can do no more than make the minimum payments on their incurred debts. When the interest rates climb, many won't be able to even make those payments. Another illogical idea is that the homes they bought will forever keep evaluating upwards. They should study the cyclical movement of housing prices. Many people went bankrupt in the early 70's when mortgage rates hit the 20% mark -- or higher. Closer at hand was the housing bust of the early 90's. In such a volatile world as the current one, anything could upset their apple cart--spiking oil prices, catastrophic terrorist attacks, or having their jobs outsourced to the Third World. None of these dire threats to their economic well-being is implausible. As Chevreau cautions, "It is time for Canadians to rediscover the virtues of delayed gratification."

© Bud