Jason Kirby writes an interesting piece today in Macleans: "Pay up or get out." For people at the bottom of the poverty well, a better title would be "Save up or die."
According to Kirby, six months ago Nortel employee Marcus Leech was earning an annual salary of $127,000.
He knew the telecom giant was on shaky ground. But with three decades of experience, Leech was sure he could land another good job if need be. So when his wife, who had stayed home to raise and educate their three children, went to school to become a pharmacist last August, Leech thought nothing of tapping his line of credit for the $9,000 tuition. Nor did he fret much when he took out a mortgage of around $280,000 for a new home in Smiths Falls, Ont., or when he borrowed thousands to replace the family’s two aging vehicles. In all, the family piled on more than $400,000 in debt in the last few years. [my emphasis]
Leech justifies this head-in-the-sand attitude this way.
“When I was young if you got heavily into debt it was a very serious issue, but now it’s just seen as normal. If you’re an average middle-income family with two or three kids and only a single income, debt is the only way to keep the family going.”
Perhaps it's my age showing, but I'm blown away by the failure of Leech and others like him to face up to the reality he saw around him, not to mention his eager buy-in of consumerism.
Given Leech "knew the telecom giant was on shaky ground," why wasn't he more cautious about incurring debt? Why didn't he stay in the old house and keep the old cars? Why didn't he do that and start tucking away money in a savings account?
It's as though Leech never outgrew the teen years during which a sense of infallibility is normal.
Now the man is both out of a job and his family is overburdened with debt.
I wouldn't wish this situation on anyone and hope Leech's family survives intact. But there are tough years ahead for all family members. The adjustments necessary will be more than financial; crucial to the family's survival will be painful psychological adjustments.
Return to Kirby's article. He writes:
[S]tarting in the 1990s our attitude to debt changed. As interest rates fell and soaring house prices made everyone feel richer, our nation of savers became a nation of borrowers. Debt emerged as the great enabler, the ticket to the trappings of a better life, to flat screen TVs and shiny new SUVs. [my emphasis]
No, this wasn't the case for everyone. There's a whole class of the population whose lives are lived unnoticed and unremarked, and whose lifestyles are anything but what is described.
We’re now at the point where regular Canadians are carrying even more debt than Americans. It’s true we used to save much more - as recently as 1990 we socked away 13 per cent of our disposable incomes - but the average debt carried by Canadian households has jumped 71 per cent.... As of last year, we only saved three per cent of the money coming in the door, and according to the consulting firm Deloitte, the average Canadian family now owes more than 1.3 times its disposable income. [my emphasis]
So this is where my head exploded.
As our regular readers know, Daphne and I have household incomes in the lowest decile range. Our income source is entirely through self-employment. Although our households have different characteristics, they are relatively similar in terms of finances. Daphne and I also share a virtually identical outlook with respect to money, work and employment.
In good years, each of our households might have earned almost twice as much as usual. Which means they STILL remained below the poverty line. During those years, we saved any "excess," since we knew things wouldn't always be so good, at least relatively speaking.
For example, during the years 2004 through 2007, I averaged an annual income of $12,500 from self-employment. That's $50,000 over four years.
How much do you suppose I saved?
HINT: Far more than the 13 percent the average person saved back in 1990.
What have those savings meant to me? They've meant that when times got bad, as they inevitably did starting January 2008 when contract work became more scarce and my health deteriorated, I'd have money enough to get me to age 60, at which point I would start collecting CPP and be eligible for BC's SAFER rental subsidy.
Daphne's and my excellent money management skills are not unique among the very poor. Which defies the stereotype of low-income people pissing away money faster than they can make it. In fact, the likes of Marcus Leech could learn some vital lessons from we lowly folk.
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