When Boomers were growing up in the fifties and sixties, Canadians were recognized as being among the highest money savers in the world. We were frugal, practical people who regularly deposited a bit of money into our savings account or purchased Canada Savings Bonds for emergencies and retirement. It’s no coincidence that the sixties is also when that ubiquitous and self-destructive little piece of plastic known as the credit card was introduced for widespread use. Now, Canadians are among the highest debtors in the world, spending approximately $1.63 for every $1.00 earned.
A young couple from Mississauga was featured on the front page of the Report on Business section of The Globe and Mail the other day in a feature entitled “What to do when your mortgage rules you”. The husband and wife both work in the financial services industry and are faced with a financial dilemma, which is rather ironic. They’re expecting a baby soon and are so mortgage-poor that they don’t know how they’re going to afford to live when the wife is on mat-leave as they’ll be short about $1,000.00 each month. Naturally, we should sympathize with a young couple struggling to start a family and own a house in today’s hot real estate market.
As I read the profile of the couple and their struggles, my feelings turned from empathy to shock and ultimately anger at what I consider to be their absolute stupidity. Here’s a synopsis of their situation:
- His annual income – $73,000.00
- Her annual income – $55,000.00
- Purchase price of their home in 2011 – $747,000.00
- Current mortgage liability – $661,000.00
- Current home value – $925,000.00
- Debts on line-of-credit, to family members and credit cards – $80,000.00
The tragedy of this situation is that they represent a huge number of people in the same boat. And that boat is called “Living Beyond Their Means”. We’ve all experienced financial constraints over the years (it wasn’t that long ago I couldn’t afford groceries) but when someone sinks their own ship I have trouble sympathizing. The featured couple’s home is 3500 square feet with four bedrooms and five bathrooms. They were hoping it would be a multi-generational home consistent with their cultural background and they were disappointed they hadn’t been able to afford a back yard pool. Then, they unexpectedly got pregnant. And the bank will give them no further credit. Boo hoo!
The Globe’s financial writer, Rob Carrick analysed their situation but didn’t offer what I consider to be good “tough love” advice. He suggested that with some juggling and refinancing they could consolidate their debts into their mortgage. The husband’s father would also be contributing $500.00 a month of his pension toward the costs of living in the house. I’m not a financial wizard and I’ve certainly made my share of financial mistakes over the years, but you don’t have to be an expert to figure this one out. It’s the old story of champagne tastes and beer pocketbook. For the first time in our history Canadians are in a credit crunch. We’ve borrowed too much money to maintain a high standard of living and do not have the ability to pay off our debt much less save for emergencies and retirement. Easy credit has become our nemesis.
It appalls me that young people feel they should have a car and a condo with granite countertops as soon as they get a job. Whatever happened to three girls sharing a one-bedroom apartment until you could afford to rent your own bachelor apartment? I did that. Then, when I finally got that longed-for one-room bachelor rental apartment of my own on Vaughan Road (a gem, you can be sure) with an ancient unused milk box in the hallway beside the door, a claw-foot tub with no shower and no countertop at all, never mind granite in the miniscule kitchen, I was so proud that it was all mine, finally. There were no laundry facilities in the building so once a week I walked my green garbage bag full of laundry in a bundle buggy down to St. Clair Avenue where there was a laundromat.
A few years ago I was living in a brand-new townhouse in Thornhill that had been within my means when I purchased it but things changed when I became self-employed earning considerably less income. So I put it up for sale at a small profit, took the accrued funds and bought a lovely little fixer-upper townhouse built in the seventies in Mississauga for half the price. If I were the couple in The Globe and Mail profile that’s what I’d do. They’d net out $184,000.00 after they pay off their debts. Bite the bullet. Lower your expectations. Live within your means and live happily ever after. I’ll have more to say on this.