47 – The Current State of Canadian’s Finances and Insolvency Rates

Wayne Kay  0:04  

Well, welcome to the Debt Matters podcast where we help Canadians find solutions to their debt, with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to talk about a new stat that’s come out saying 38% of Canadians say money is their number one source of stress in life. 

So what does that mean? Are we seeing insolvency in our country, Bankruptcies? What is the biggest cause of these money problems? We’re going to learn about that. We’re going to talk about what the financial scene looks like, and will it improve or will it get worse? We’re going to talk about some positive steps that you can take to alleviate the stress over debt. And we’re going to talk about some options for you to deal with your debt. 

To help me with this today, Leigh Taylor’s joining me from LCTaylor Licensed Insolvency Trustee with offices in Winnipeg and Kenora. Leigh, thanks for being here. 

Leigh Taylor  1:04  

Well, it’s a pleasure Wayne. 

Wayne Kay  1:07  

These numbers, I don’t think they’re really that surprising, seeing what we’ve been going through for the last few years. Do they surprise you that 38% of Canadians say money’s the number one source of stress in their lives?

Leigh Taylor  1:18  

Well, I don’t think that’s a surprise at all. I’m surprised it’s not higher than that to tell you the truth. They’re not necessarily reflected in the numbers of insolvencies, the number of Bankruptcies and Consumer Proposals, et cetera. But part of it is the difficult times that we’ve been experiencing in the last couple of years. If you look at the last 12 months, the numbers of Bankruptcies are only up about 1%. In fact, in some areas even decreased, there’s more Consumer Proposals than Bankruptcies. That’s a trend that’s been happening. 

But I think part of it is that with the tough economic times we’ve had, there have been a lot of things that have created problems for people. It’s traditionally been that people will go bankrupt or seek the services of a Bankruptcy Trustee or Licensed Insolvency Trustee, about a year and a half to two years after the sort of traumatic financial event that precipitated. 

So it’s not surprising that with COVID, being now a couple of years old, that we haven’t seen a lot of Bankruptcies. A lot of people may be in financial difficulty, but you know, Revenue Canada’s working from home, collection agencies aren’t doing a whole lot these days. So people aren’t being pressured into recognizing their financial difficulty.

Wayne Kay  2:43  

So they see the numbers and when it comes in on their statements, etc, they know there’s an issue, but they’re not being hounded like they would have been before. So that’s what you’re saying?

Leigh Taylor  2:54  

Yes, that’s a lot of it. They’re not being pressured to do something about it. And I think it’s a normal human reaction, to have sort of inertia on your side. If nobody is pushing you towards solving the problem, and you don’t know what the solution may be yourself, you tend to ignore it or do nothing until things get pressured.

Wayne Kay  3:12  

So when we talk about these money problems. When you have money problems, and you have this stress in your life, it affects everything around you. What do you think the biggest cause of the money problems are for Canadians?

Leigh Taylor  3:26  

Well, marriage breakup has traditionally been sort of the biggest cause of financial difficulty. But the other side of the coin is true, too. There were financial problems that have been the biggest cause of their marital breakup as well. That traditional approach has changed because of the last couple of years of tough economic times. Because the COVID epidemic has created a whole new set of factors that sort of work their way into this. There have been massive job losses. But the government’s been pouring money into the problem and not necessarily solving the problem, but certainly putting them off and procrastinating things. 

You have to remember that much of the CERB money that was given out is taxable. And people are only now getting to the point where they’re realizing that they’re going to have to pay a whole lot more in taxes than they thought they were going to normally. And all of this puts more pressure on relationships. 

We’ve got rapid inflation right now. And it’s real, it creeps up on you. It’s not like everything goes up by eight or nine or 10% in one day. This goes up and that goes up and before you know it, you’re not getting as much on your grocery budget as you’d hoped for. And now we’ve got interest rates going up in combination with this as well. And the government’s use interest rates to check inflation. It can be a real problem that affects the average person a lot. 

Think about renewing your mortgage and a mere 2% increase in the mortgage rate can cost you an extra $500, $600, $700 a year or a month rather. And that on top of everything else, boy, it’s putting a lot of pressure on people.

Wayne Kay  5:11  

As you were talking, I was thinking about some of the things that really are kind of kicking Canadians in the gut. And that is if you did have that job loss during COVID and then all of a sudden you did get CERB but you ended up getting a couple of extra CERB payments and then got a job. You got rehired somewhere else. 

I know a lot of Canadians that are actually being told they need to repay some of those payments. Some of its $500, some of its $1,000 and some of its more. And imagine that if you’re already dealing with the inflation that we have going on the high costs of everything. And now all of a sudden you get a bill for a couple of $1,000 on top of what you’ve already in debt, that’s part of this whole problem, isn’t it?

Leigh Taylor  5:57  

That’s right, it’s sort of one problem stacked on top of another on top of another. Even for small small businesses. A lot of them got that $40,000 loan from the government that they didn’t have to repay at all, if they repaid it on time. And the government’s basically given them an extension or a year’s extension on repaying it, but it’s gone. It’s been spent. 

They’re having a tough time recovering, they’re going to come up and find out that no, they’re not going to save themselves $20,000 by repaying that they’re going to have to repay the whole thing. So it’s just one more problem on top of the other problems to deal with.

Wayne Kay  6:34  

So we’re looking into Leigh’s crystal ball. Do you think the Canadian financial scene is going to improve or decline over the next little while?

Leigh Taylor  6:45  

Boy, that’s a real tough one. You can get five economists giving six different opinions on that one. I think it’s fair to say that these are the most precarious economic times we’ve had in almost 40 years. All forms of government are reluctant to take any difficult steps to solve these problems. 

Back in the 1980s, and most people weren’t around that now. Mortgage rates hit 17% or higher. So it can get a whole lot worse. Can the government do things to stop it? Yes, but there’s going to be a lot of pain involved. Interest rates will curb inflation. But that becomes very expensive, particularly if you’re living on retirement savings and hoping to get some interest off it, but to not get it all depleted before you die. 

So we’re not at the worst of it yet. That’s sort of the sad part. And we’re probably months before we see the worst. And many months before, even with government intervention, it gets corrected. So we’re in for some hard times, I believe.

Wayne Kay  7:50  

And I just saw some new stats out yesterday saying, 70% of people are skipping their vacations this year, summer vacations, because of the high cost of gas and hotels, everything has gone up so far. That’s a pretty big number, 70% of people saying well, they’re not going to be traveling, they’re cutting that out of their budgets as well. 

So let’s talk about some of the positive steps. If somebody is in this situation, they’re dealing with this stress of money in their lives, let’s talk about some positive things they can do to get rid of this stress over their debts.

Leigh Taylor  8:29  

I think the first thing when you’re dealing with the problem is to recognize what the problem is and the extent of the problem. You have to take a close objective look at your finances. Sit down with your family members, figure out where you’re spending your money, start reassessing what your priorities are, and set up a budget that reflects the reality of your situation. 

I mentioned earlier that it seems to be human nature to put things off and ignore them until you’re forced to make a decision or whatever. But this is getting to be the point in time when people really should be making some hard decisions about their situation before their credit cards run out and their taxes are due and these sorts of things. 

If you start early enough, then revamping your budget so that it’s practical and livable is possibly doable. If you don’t and you wait too long, then other government forces whether it’s going to be Revenue Canada collecting on your outstanding taxes, or your credit cards getting canceled and going into collections, nice sorts of things. That all makes things a whole lot more difficult. So doing something earlier in the situation is I think the first step. You want to reduce your debt for these tough times, particularly credit cards and high interest rates, then that’s a good start.

Wayne Kay  9:49  

Right and it really can be done. I love seeing the stories of people who pretty much canceled everything other than TV, everything, got rid of their house phones anywhere, they can save money, and really go after tackling that debt. 

And it’s amazing how quick, once you get the family on board, and you definitely do have to, you do have to tighten things up for sure. But it’s amazing how quick you can start seeing the difference. And then you’ve seen this – what’s it like, when somebody finally pays off that debt?

Leigh Taylor  10:26  

Well, there’s a lot of ways of doing it. It is encouraging to say that 70% of people are going to be canceling the vacation means that 70% of them are setting new priorities for themselves, and giving up sort of short term pleasures for longer term gains. 

That still says that 30% of people aren’t – whether it’s not resetting their priorities, or just sort of full steam ahead, and we’ll see what happens when we run out of money. So there’s lots of things that are happening out there. And not everybody’s taking the best steps to do it. But that’s to be expected, I guess.

Wayne Kay  11:03  

As a Licensed Insolvency Trustee, what happens when somebody walks into your office for the very first time? You do a consultation with them and there’s no charge for that. And oftentimes, you kind of get to know what their situation is. And then out comes the pen and paper, if you will, and you start looking at where they’re spending their money. What are some of the first things that you, as a professional, tell people they need to start cutting back on?

Leigh Taylor  11:33  

Well, I think everybody’s unique with respect to this, and they’ve got their own priorities. Their kids are important to them. They don’t want to cut out things that their kids are involved in.

Wayne Kay  11:45  

Don’t get rid of the kids, keep the kids.

Leigh Taylor  11:49  

It’s a question of priorities. So what we try to do is get people to figure out where they’re spending their money. That’s the first step because a lot of people really don’t know where the paycheque has gone. They paid their rent, or their mortgage payment and a car payment. And after that, they start thinking, Well, I don’t remember where I spent it all. 

So the first step in making a budget is to keep track of it. Maybe it takes you a month to sit down and keep track of where you’re spending your money. Then once you know that you can go through that. But you say, well, where should I spend my money? If I ran out of money before the last week of the month? What is it that I couldn’t afford? That’s where people put things on credit cards that they have any room left on their credit cards and these sorts of things. 

So you have to sit down with your family, your spouse, or whatever and decide what your priorities are. Hopefully, you can agree on what the priorities are. Or you might have financial difficulty because of the marriage breakup. But if you can say this is what the important things are, then you start at the top of the list of priorities and start checking them off. And when you go down to the point where you run out of money, well, those are the priorities you cut.

Wayne Kay  13:02  

Okay. And so do you feel that this is the starting point for getting rid of that stress?

Leigh Taylor  13:08  

Yes, we’re certain. And people react in different ways to stress and different levels of stress to different parts of this. There will be times your spouse may not be particularly worried about finances, because they leave it all to you. So now you’ve got all this stress. And stress is a problem. Stress kills is the terminology that comes to mind, it’s not good for your health, it’s not good for your job, certainly not good for interpersonal relationships. So you’ve got to do something about it. 

And the biggest stress, as we talked about before, is financial. If you’ve got control of it, you feel like you’re doing something about it, that’ll start relieving your stress right away. And as soon as your plan goe into action, and you start finding that, instead of running out of money on week three, you’re making it to the end of the month. That’s a pretty good feeling. And if you’re fortunate enough to start reducing some of the credit card bills and getting back on track there –  boy, that’s a super feeling.

Wayne Kay  14:09  

Now, you mentioned something you said often, sometimes the spouse may say it’s your job, you take care of the finances. I can’t see that as being fair. I would assume you want everybody to be involved.

 

Leigh Taylor  14:29  

Well, if you want it to work, and that’s the point. If you want it to work, I think spouses have to get involved in this and agree on it. Now, invariably, one spouse may be more adept, or have an accounting background or are just a little bit more comfortable with dealing with the fingures and everything. 

But you can’t just abdicate the total responsibility to the other spouse, you have to know what’s going on. Because you’re going to be responsible for part of it, even if it’s just the spending part of it, or the earning part of it. And if you want to make it work, then you both have to be involved.

Wayne Kay  14:58  

Right and if all of a sudden they are having too many problems with this, what do they do? What are their options?

Leigh Taylor  15:04  

Well, I think once you realize that it’s not going to be solved with just a budget, because you will be too far in the hole to dig yourself out with a budget. That often happens. Then it’s really important to talk to a professional, a Licensed Insolvency Trustee. We’re the ones that are trained and have the background and education to deal with this. We are licensed by the federal government. And we’re audited by the federal government to make sure we’re doing the right thing all the time. 

A Licensed Insolvency Trustee can sit down with you, and first of all, help you with the budget because not everybody understands and has the ability to put together the budget in the kind of detail that it’s required. So that can be encouraging. 

But we also have the idea to help you talk about things like what are your priorities? Is your summer vacation, higher priority than paying your rent? Those are the kinds of decisions that have to be made. And once you sort of set your priority, you realize, well, I don’t have enough money left over at the end of the month to even pay those real necessities that I’ve got. I’ve got medical problems and I need to deal with drugs, I need transportation to get to work, if I’m going to continue working – these sorts of things.

There’s going to be other solutions, perhaps a little more drastic and legislative solutions like Bankruptcy or like filing a Consumer Proposal in which you can deal with not so much how much money you are getting in to pay the debts, but a way of reducing the debt obligations that you’ve got on a monthly basis. And that can get you back on your feet too. 

I think the key is that you have to find a solution to it. You can’t just go along hoping that it’ll go away. It doesn’t work that way. A professional Licensed Insolvency Trustee can go a long way to identifying the solutions that may be available to you and helping you make a decision as to which of the alternatives is best for you. The one that is in your best interest, not necessarily your creditors best interest.

Wayne Kay  17:16  

Right. I think that’s perfect. Great information. Leigh, always a pleasure. Thanks very much for this.

Leigh Taylor  17:23  

Well, thank you Wayne.

Wayne Kay  17:24  

My guest today, Leigh Taylor. You can learn more or schedule that free consultation with LCTaylor Licensed Insolvency Trustee at the website LCTaylor.com. 

And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course for more information, you can always check out debtmatters.ca Thank you very much for listening.