Live debt-free: How Bad is Household Debt Really?

I mentioned in a previous post that Canadians and Americans spend about $1.64 for every dollar they earn. The biggest expense is housing, followed by student loans, car loans, furniture, vacation, and everything in-between. Here are some interesting contributing factors. According to The Economist’s article of June 2013, ” . . . household debt for most wealthy countries rose by an average of 30 percentage points to 130% of disposable income in OECD countries!”

Dalhousie University in Halifax, Nova Scotia (Canada), published a study: Canada’s Food Price Report 2017 headed by Dr. Charlebois. The report explained how 2016 was a difficult year to gauge due, in part, to unexpected weather patterns and a lower Canadian Dollar, factors that contributed to a spike in food prices. The study forecasted that in 2017, food prices would rise between 3% and 5% – which it states is above acceptable food inflation. The hardest hit Provinces will be British Columbia and Ontario, where prices will be higher than in the other 8 Provinces, citing this is “due to a weaker economy and a more competitive food distribution landscape”. The report breaks down the price increases by food groups, which can be seen here. Some provinces will see less dramatic price increases due to existing food stores.

A 2015 article in The Canadian Press, explains how borrowing rose faster than income; a factor we have some control over. According to the article, household debt compared with disposable income was up 0.3% in the 3rd. quarter, to 163% from 162.7% the previous quarter. Credit card debt rose to approximately $572 billion while mortgage debt reached $1,234 trillion! It’s hard to wrap one’s head around such astronomical numbers.

US debt fares much better. With a stronger currency, the United States does not feel the impact of food prices in the same way Canada does. According to the Food Price Outlook, the USDA Economic Research Service expects a slight downward trend in the cost of poultry, eggs and fruit and a slight increase in cereals and bakery products. Overall food prices, compared to previous years, should remain unchanged.

Political uncertainty will also affect household debt; it remains to be seen whether the present political climate will bring relief or hardship to American households. According to an article in The Washington Post, the housing market will see a slowing yet moderated growth. Much will depend on what repercussion the current administration’s infrastructure policies will have on real estate. Mortgages will, of course, be affected If the US Government is set to raise interest rates.

Some of the factors above are not things we can control. However, as you can see, the numbers on consumer debt are a resounding warning to us of the possible consequences of a destabilized job market and the impact this may have on our quality of life. By getting our debts sorted and placing ourselves in a position of strength, by setting money aside, we should be able to mitigate the negative ramifications future economic and geopolitical events may trigger, and minimize fear and uncertainty in times to come.

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